<PAGE>
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 20-F

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                            -------------------------

                           COMMISSION FILE NO. 2-44872

                                 ELSCINT LIMITED

            (Exact name of Registrant as specified in its charter and
                 translation of Registrant's name into English)

                        ---------------------------------

                                     ISRAEL

                 (Jurisdiction of incorporation or organization)

                     13 MOZES STREET, TEL AVIV 67442, ISRAEL

                    (Address of principal executive offices)

                         ------------------------------

Securities registered or to be registered pursuant to Section 12(b) of the Act:

        TITLE OF EACH CLASS            NAME OF EACH EXCHANGE ON WHICH REGISTERED
ORDINARY SHARES, NOMINAL VALUE 0.05            NEW YORK STOCK EXCHANGE
   NEW ISRAELI SHEKELS PER SHARE

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                                      NONE

                                (Title of Class)

        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act:

        ORDINARY SHARES, NOMINAL VALUE 0.05 NEW ISRAELI SHEKELS PER SHARE

                                (Title of Class)

                 -----------------------------------------------

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 17,493,143

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: YES [X] No [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow: ITEM 17 [ ] ITEM 18 [X]
================================================================================
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
<S>                                                                         <C>
Part I ....................................................................    1
ITEM 1. -- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...........    1

ITEM 2. -- OFFER STATISTICS AND EXPECTED TIMETABLE.........................    1

ITEM 3. -- KEY INFORMATION ................................................    1

ITEM 4. -- INFORMATION ON THE COMPANY......................................   17

ITEM 5. -- OPERATING AND FINANCIAL REVIEW AND PROSPECTS....................   33

ITEM 6. -- DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES......................   57

ITEM 7. -- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............   63

ITEM 8. -- FINANCIAL INFORMATION...........................................   65

ITEM 9. -- THE OFFER AND LISTING...........................................   69

ITEM 10. -- ADDITIONAL INFORMATION.........................................   71

ITEM 11. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....   83

ITEM 12. -- DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.........   91

Part II ...................................................................   91
ITEM 13. -- DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES................   91

ITEM 14. -- MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
              USE OF PROCEEDS..............................................   91

Part III ..................................................................   91
ITEM 15. -- CONTROLS AND PROCEDURES .......................................   91

ITEM 16. -- [RESERVED]                                                        92

ITEM 16A. -- AUDIT COMMITTEE FINANCIAL EXPERT..............................   92
ITEM 16B. -- CODE OF ETHICS................................................   92
ITEM 16C. -- PRINCIPAL ACCOUNTANT FEES AND SERVICES........................   92
ITEM 16D. -- EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES....   93
ITEM 16E. -- PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND
               AFFILIATED PURCHASERS.......................................   94
ITEM 17. -- FINANCIAL STATEMENTS...........................................   94

ITEM 18. -- FINANCIAL STATEMENTS...........................................   94

ITEM 19. -- EXHIBITS ......................................................   94
</TABLE>


                                       -i-
<PAGE>
PART I

      ITEM 1. -- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

      Not applicable.

      ITEM 2. -- OFFER STATISTICS AND EXPECTED TIMETABLE

      Not applicable.

      ITEM 3. -- KEY INFORMATION

      A. SELECTED FINANCIAL DATA

      The following selected consolidated financial data of Elscint Limited and
its subsidiaries (together, "Elscint", the "Company", "our Company", "we" or
"us") as of December 31, 2004 and 2003 and for each of the years ended December
31, 2004, 2003 and 2002 has been derived from our consolidated financial
statements and notes included in this report. The selected consolidated
financial data as of December 31, 2002, 2001 and 2000 and for each of the years
ended December 31, 2001 and 2000 has been derived from audited consolidated
financial statements not included in this report. The consolidated financial
statements were prepared in accordance with Israeli generally accepted
accounting principles ("Israeli GAAP"), and audited by Brightman Almagor & Co.,
an independent registered public accounting firm in Israel, and a Member Firm of
Deloitte Touche Tohmatsu, except for certain subsidiaries and an associate which
were audited by other auditors. You should read the selected consolidated
financial data together with "Item 5 -- Operating and Financial Review and
Prospects" and our consolidated financial statements included elsewhere in this
annual report.

      The selected consolidated financial data presented in this report includes
information for 2004, 2003, 2002, 2001 and 2000. The selected financial data for
the year ended December 31, 2003, 2002, 2001 and 2000 are stated in values
adjusted for the change in the general purchasing power of the Israeli currency
(NIS adjusted to the Israeli Consumer Price Index as of December 2003). The 2004
selected consolidated financial information are presented in reported value (as
this term is defined in the Note 2A. (1) in the financial statements included in
Item 18). The 2004 information is presented in NIS as well as a convenience
translation to U.S. dollars.

CURRENCY TRANSLATION

      For the reader's convenience only, some financial information has been
translated from New Israeli Shekels ("NIS"), to the U.S. dollar, using the
representative exchange rate as published by the Bank of Israel at December 31,
2004 (U.S.$1.00 = NIS 4.308). The dollar amounts reflected in these convenience
translations should not be construed as representing amounts that can actually
be received or paid in dollars or convertible into dollars (unless otherwise
indicated), nor do such convenience translations mean that the NIS amounts (i)
actually represent the corresponding dollar amounts stated, or (ii) could be
converted into dollars at the assumed rate. The Federal Reserve Bank of New York
does not certify for customs purposes a noon buying rate for wire transfers in
NIS. Therefore, all information about exchange rates is based on the Bank of
Israel rates.

      In addition, certain information with respect to other currencies has been
translated, for the reader's convenience only, into NIS and U.S. dollar, using
the representative exchange rates as published by the Bank of Israel as at
December 31, 2004.


                                      -1-
<PAGE>
INCOME STATEMENT DATA AS PER ISRAELI GAAP:

<TABLE>
<CAPTION>

                                                                                                                      CONVENIENCE
                                                                    YEAR ENDED DECEMBER 31,                           TRANSLATION,
                                            ------------------------------------------------------------------        DECEMBER 31,
                                              2004           2003           2002           2001           2000           2004
                                              ----           ----           ----           ----           ----           ----
                                            REPORTED                             ADJUSTED
                                            --------         -------------------------------------------------           US $
                                                                        NIS (THOUSAND)                                (THOUSAND)
                                            ------------------------------------------------------------------        ----------
<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
REVENUES
Hotels operations and management              218,365        189,205        206,679        139,223        106,051         50,688
Commercial center operations                   55,263         20,106             --             --             --         12,828
Asset leasing                                  13,238         13,495             --             --             --          3,073
Long-term contracts                                --             --          1,509         10,028         19,983             --
                                           ----------     ----------     ----------     ----------     ----------     ----------
                                              286,866        222,806        208,188        149,251        126,034         66,589
                                           ----------     ----------     ----------     ----------     ----------     ----------
COST OF REVENUES
Hotels operations and management              137,622        128,301        133,207         95,851         68,606         31,946
Commercial center operations                   59,885         21,975             --             --             --         13,901
Asset leasing                                   3,175          3,510             --             --             --            737
Long-term contracts                                --             --          1,392          7,311         17,900             --
                                           ----------     ----------     ----------     ----------     ----------     ----------
                                              200,682        153,786        134,599        103,162         86,506         46,584
                                           ----------     ----------     ----------     ----------     ----------     ----------
GROSS PROFIT                                   86,184         69,020         73,589         46,089         39,528         20,005
Hotels' depreciation, amortization
  and operating expenses                       64,513         50,432         61,503         31,550         22,688         14,975
Initiation expenses                             1,611          4,303          1,773          3,960          1,813            374
Selling and marketing expenses                 14,046          8,948             --             --             --          3,260
General and administrative expenses            27,608         29,355         31,574         25,790         23,262          6,409
                                           ----------     ----------     ----------     ----------     ----------     ----------
                                              107,778         93,038         94,850         61,300         47,763         25,018
                                           ----------     ----------     ----------     ----------     ----------     ----------
OPERATING LOSS BEFORE FINANCE
  INCOME (EXPENSES), NET                      (21,594)       (24,018)       (21,261)       (15,211)        (8,235)        (5,013)
Finance income (expenses), net                (34,805)       (41,262)        12,805         65,093        (20,211)        (8,079)
                                           ----------     ----------     ----------     ----------     ----------     ----------
OPERATING LOSS AFTER FINANCE
  INCOME (EXPENSES), NET                      (56,399)       (65,280)        (8,456)        49,882        (28,446)       (13,092)
Other expenses, net                            (9,361)       (16,176)       (21,502)       (13,114)         2,617         (2,173)
                                           ----------     ----------     ----------     ----------     ----------     ----------
LOSS BEFORE INCOME TAXES                      (65,760)       (81,456)       (29,958)        36,768        (25,829)       (15,265)
Tax benefits                                     (647)        (8,384)        (5,221)         5,383          4,634           (151)
                                           ----------     ----------     ----------     ----------     ----------     ----------
LOSS AFTER INCOME TAXES                       (65,113)       (73,072)       (24,737)        31,385        (30,463)       (15,114)
Share in loss of an associated company         (6,611)        (7,019)        (2,847)        (9,712)        (3,240)        (1,535)
Minority interest in loss (profit)
  of a subsidiary                                (724)           746            879          1,288             --           (168)
                                           ----------     ----------     ----------     ----------     ----------     ----------
LOSS FROM CONTINUING OPERATIONS               (72,448)       (79,345)       (26,705)        22,961        (33,703)       (16,817)
NET PROFIT FROM DISCONTINUING OPERATION        11,067         12,972         88,983         33,935         76,471          2,569
                                           ----------     ----------     ----------     ----------     ----------     ----------
NET PROFIT (LOSS)                             (61,381)       (66,373)        62,278         56,896         42,768        (14,248)
                                           ==========     ==========     ==========     ==========     ==========     ==========
BASIC EARNINGS (LOSS) PER ORDINARY
  SHARE (NIS 0.05 PAR VALUE) FROM:

    Continuing operations                       (4.37)         (4.75)         (1.60)          1.37          (2.02)         (1.01)
    Discontinuing operation                      0.67           0.78           5.33           2.03           4.58           0.16
                                           ----------     ----------     ----------     ----------     ----------     ----------
                                                (3.70)         (3.97)          3.73           3.40           2.56          (0.85)
                                           ==========     ==========     ==========     ==========     ==========     ==========
Weighted average number of ordinary
  shares (NIS 0.05 par value) used
  in the computation of basic earnings
  (loss) per share                         16,597,181     16,690,643     16,690,643     16,690,643     16,690,643     16,597,181
                                           ==========     ==========     ==========     ==========     ==========     ==========
DILUTED EARNINGS (LOSS) PER ORDINARY
  SHARE (NIS 0.05 PAR VALUE) FROM:
    Continuing operations                         (*)            (*)          (1.66)           (*)            (*)            (*)
    Discontinuing operation                       (*)            (*)           5.10            (*)            (*)            (*)
                                                                         ----------
                                                                               3.44
                                                                         ==========
Weighted average number of ordinary
  shares (NIS 0.05 par value) used
  in the computation of diluted
  earnings per share                                                     17,424,643
                                                                         ==========
</TABLE>

(*) anti dilutive.


                                      -2-
<PAGE>
INCOME STATEMENT DATA AS PER U.S. GAAP (*):

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,                       CONVENIENCE
                                            ----------------------------------------------------------      TRANSLATION
                                                                                                            DECEMBER 31,
                                             2004         2003         2002          2001         2000        2004
                                             ----         ----         ----          ----         ----        ----
                                            REPORTED                       ADJUSTED
                                            --------      --------------------------------------------         US $
                                                                 NIS (THOUSANDS)                            (THOUSAND)
                                            ----------------------------------------------------------      ----------
<S>                                         <C>          <C>          <C>          <C>          <C>         <C>
A) NET INCOME AND COMPREHENSIVE INCOME:

Loss from continuing operations             (63,960)     (30,334)     (19,340)      (8,969)     (26,221)     (14,847)
Net profit from discontinuing operation      11,067       50,121       51,834       33,935       76,471        2,569
                                            -------       ------       ------       ------       ------      -------
Net profit (loss)                           (52,893)      19,787       32,494       24,966       50,250      (12,278)
                                            =======       ======       ======       ======       ======      =======

Total comprehensive income (loss)           (35,529)      40,156       76,656       42,362       41,900       (8,247)
                                            =======       ======       ======       ======       ======      =======

B) EARNINGS PER ORDINARY SHARE
  (NIS 0.05 PAR VALUE)

Basic and diluted earnings (loss) per
  ordinary share:

Continuing operations                         (3.85)       (1.81)       (1.16)       (0.54)       (1.57)       (0.89)
Discontinuing operation                        0.67         2.98         3.10         2.03         4.58         0.15
                                            -------       ------       ------       ------       ------      -------
                                               3.18         1.18         1.94         1.49         3.01         0.74
                                            =======       ======       ======       ======       ======      =======
Weighted average number of shares
  (NIS 0.05 per value) used in the
  computation of basic and diluted
  earning (loss) per share (thousands)       16,597       16,691       16,691       16,691       16,689       16,597
                                            =======       ======       ======       ======       ======      =======
</TABLE>

(*)   For further information as to the differences between Israeli and U.S.
      GAAP, as applicable to the Company's financial statements, see note 24 to
      the attached financial statements, included in Item 18 below.

SELECTED BALANCE SHEET DATA AS PER ISRAELI GAAP :

<TABLE>
<CAPTION>

                                                                                                                        CONVENIENCE
                                                                           AS AT DECEMBER 31,                           TRANSLATION
                                                    -------------------------------------------------------------       DECEMBER 31,
                                                      2004         2003          2002          2001          2000           2004
                                                      ----         ----          ----          ----          ----           ----
                                                    REPORTED                          ADJUSTED
                                                    --------       ----------------------------------------------           US $
                                                                           NIS (THOUSANDS)                               (THOUSANDS)
                                                    -------------------------------------------------------------        -----------
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Current assets                                       256,854       313,747       288,779       478,961       490,126        59,623
Long-term receivable and investments                  81,428       104,131       377,733       380,204       538,301        18,902
Fixed assets                                       2,185,325     2,003,427     1,606,786     1,334,237       911,132       507,271
Assets related to discontinuing operation             14,700        16,228       111,983       186,930       304,155         3,412
Total assets                                       2,550,956     2,448,449     2,397,284     2,392,033     2,248,093       592,144

Short-term credits                                   135,429       407,599       522,242       438,513       369,063        31,436
Long-term liabilities                              1,325,803       850,470       627,268       608,303       598,544       307,754
Liabilities related to discontinuing operation        71,410        82,217       108,469       250,623       266,744        16,576
Shareholders' equity                                 882,880       946,198     1,002,154       991,287       918,577       204,940
</TABLE>


                                      -3-
<PAGE>
SELECTED BALANCE SHEET DATA AS PER U.S. GAAP (*) :

<TABLE>
<CAPTION>
                                                                                                                        CONVENIENCE
                                                                                                                        TRANSLATION
                                                                            AS AT DECEMBER 31,                          DECEMBER 31,
                                                    --------------------------------------------------------------      ------------
                                                      2004         2003          2002          2001           2000          2004
                                                      ----         ----          ----          ----           ----          ----
                                                    REPORTED                          ADJUSTED
                                                    --------       -----------------------------------------------          US $
                                                                             NIS (THOUSANDS)                             (THOUSANDS)
                                                                   -----------------------------------------------       -----------
<S>                                                <C>           <C>           <C>           <C>           <C>           <C>
Current assets                                       256,854       313,747       288,779       478,961       490,126        59,623
Long-term receivable and investments                  53,662        61,207       327,849       335,720       496,995        12,456
Fixed assets                                       2,295,918     2,071,334     1,620,657     1,327,588       925,431       532,943
Assets related to discontinuing operation             14,700        16,228       153,413       186,930       304,155         3,412
Total assets                                       2,672,673     2,506,973     2,431,655     2,363,510     2,219,520       620,389

Short-term credits                                   135,429       407,599       522,242       438,513       369,063        31,436
Long-term liabilities                              1,411,817       902,302       676,531       652,246       600,155       327,720
Liabilities related to discontinuing operation        71,410        82,217       187,048       250,623       266,744        16,576
Shareholders' equity                                 921,675       946,198       914,369       923,867       882,508       213,945
</TABLE>

(*)   For further information as to the differences between Israeli and U.S.
      GAAP, as applicable to the Company's financial statements, see note 24 to
      the attached financial statements, included in Item 18 below.

EXCHANGE RATES

      The exchange rate between the NIS and U.S. dollar published by the Bank of
Israel was NIS 4.416 to the dollar on May 31, 2005. The exchange rate has
fluctuated during the six month period beginning December 2004 through May 2005
from a high of NIS 4.416 to the dollar to a low of NIS 4.299 to the dollar. The
monthly high and low exchange rates between the NIS and the U.S. dollar during
the six month period beginning December 2004 through May 2005, as published by
the Bank of Israel, were as follows:

<TABLE>
<CAPTION>
MONTH              HIGH                  LOW
                   1 U.S. dollar =       1 U.S. dollar =
<S>                <C>                   <C>
December 2004      4.374                 4.308
January 2005       4.414                 4.352
February 2005      4.392                 4.357
March 2005         4.379                 4.299
April 2005         4.395                 4.360
May 2005           4.416                 4.348
</TABLE>

      The exchange rates of the NIS in relation to foreign currencies listed
below published by the Bank of Israel at year-end for the past five years are as
follows:

<TABLE>
<CAPTION>
                                             DECEMBER 31,
                      --------------------------------------------------------
                      2004         2003         2002         2001         2000
                      ----         ----         ----         ----         ----
<S>                   <C>          <C>          <C>          <C>          <C>
U.S. Dollar           4.308        4.379        4.737        4.416        4.041
Pound Sterling        8.308        7.849        7.633        6.400        6.032
Euro                  5.877        5.533        4.970        3.907        3.763
</TABLE>


                                      -4-
<PAGE>
      The average exchange rate between the NIS and U.S. dollar, using the
average of the exchange rates on the last day of each month during the period,
for each of the five most recent fiscal years was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,      EXCHANGE RATE
-----------------------      -------------
<S>                          <C>
          2000               4.067 NIS/$1
          2001               4.219 NIS/$1
          2002               4.738 NIS/$1
          2003               4.548 NIS/$1
          2004               4.483 NIS/$1
</TABLE>

      B. CAPITALIZATION AND INDEBTEDNESS

      Not applicable.

      C. REASONS FOR THE OFFER AND USE OF PROCEEDS

      Not applicable.

      D. RISK FACTORS

      Our business, operating results and financial condition could be seriously
harmed due to any of the following risks, among others. If we do not
successfully address the risks to which we are subject, we could experience a
material adverse effect on our business, results of operations and financial
condition and our share price may decline. We cannot assure you that we will
successfully address any of these risks.

      Elscint's activities are divided into five principal fields: hotels and
leisure; asset leasing, consisting of leasing the hotel formerly known as the
Bernard Shaw Park Plaza hotel; the operation and development of a commercial and
entertainment center, or the Arena; a biotechnology investment and the ownership
and operation of an apparel company, Mango Israel Clothing & Footwear Ltd., or
Mango. We are subject to risks in each field of activity.

RISK RELATING TO OUR HOTELS AND LEISURE BUSINESS

THE HOTELS AND LEISURE INDUSTRY MAY BE AFFECTED BY ECONOMIC CONDITIONS,
OVERSUPPLY, TRAVEL PATTERNS, WEATHER AND OTHER CONDITIONS BEYOND OUR CONTROL
WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS.

      The hotels and leisure industry may be adversely affected by changes in
national or local economic conditions and other local market conditions. Our
hotels generally, and in particular, in London, Amsterdam and Budapest may be
subject to the risk of oversupply of hotel rooms. We are subject to various
risks related to our operations in Eastern Europe, including economic and
political instability, political and criminal corruption and the lack of
experience and unpredictability of the civil justice system. Other general risks
that may affect our hotels and leisure business are changes in travel patterns,
extreme weather conditions, changes in governmental regulations which influence
or determine wages, workers' union activities, increases in land acquisition
prices or construction costs, changes in interest rates, the availability of
financing for operating or capital needs, and changes in real estate tax rates
and other current operating expenses. Unforeseen events, such as terrorist
attacks, outbreaks of epidemics and economic recessions have had and may
continue to have an adverse effect on local and international travel patterns
and, as a result, on occupancy rates and prices in our hotels. Downturns or
prolonged adverse conditions in the real estate or capital markets or in
national or local economies and difficulties in securing financing for the
development of hotels, could have a material adverse effect on our business, our
results of operations, our ability to develop new projects and the attainment of
our strategic goals.

COMPETITION IN THE HOTELS AND LEISURE INDUSTRY COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

      The hotels and leisure business is highly competitive. This is
particularly the case in those areas where


                                      -5-
<PAGE>
there is an over-supply of rooms, such as in London, Amsterdam and Budapest.
Competitive factors within the industry include:

            -     convenience of location and accessibility to business centers;

            -     room rates;

            -     quality of accommodations;

            -     name recognition;

            -     quality and nature of service and guest facilities provided;

            -     reputation;

            -     convenience and ease of reservation systems; and

            -     the supply and availability of alternative lodging.

      We operate, and intend to develop or acquire, most of our hotels in
geographic locations where other hotels are or may be located. We expect to
compete for guests and development sites with national chains, large franchisees
and independent operators. Many of these competitors have greater financial
resources and better brand name recognition than we do, and may have more
established relationships with prospective franchisers, representatives in the
construction industry and other parties engaged in the lodging industry. The
number of competitive lodging facilities in a particular area could have a
material adverse effect on our occupancy and rates and, therefore, revenues of
our hotels. We believe that competition within the lodging market may increase
in the foreseeable future. We cannot be sure that new or existing competitors
will not significantly reduce their rates or offer greater convenience, services
or amenities or significantly expand or improve hotels in the markets in which
we currently or may subsequently compete, thereby materially adversely affecting
our business and results of operations.

ACQUIRING, DEVELOPING AND RENOVATING HOTELS INVOLVES SUBSTANTIAL RISKS, AND WE
CANNOT BE CERTAIN OF THE SUCCESS OF ANY FUTURE PROJECTS.

      Part of our strategy is to develop new hotels and to acquire and redevelop
old or under-performing hotels. Acquiring, developing and renovating hotels
involves substantial risks, including:

            -     costs exceeding our budget or amounts agreed to with
                  contractors, because of several factors, including delays in
                  completion of construction;

            -     competition for acquisition of suitable development sites from
                  our competitors, who may have greater financial resources;

            -     the failure to obtain zoning and construction permits;

            -     unavailability of financing on favorable terms, if at all;

            -     the failure of our hotels to earn profits sufficient to
                  service debt incurred in construction or renovation, or at
                  all;

            -     the failure to comply with labor and workers' union legal
                  requirements;

            -     relationships with and quality and timely performance by
                  contractors; and

            -     compliance with changes in governmental rules, regulations,
                  planning and interpretations.

      As of May 31, 2005 we were involved in the following construction
projects: (i) we were in the final stage of development of the Riverbank Park
Plaza hotel in London which opened in a limited capacity in April 2005; (ii) the
Bucuresti Hotel in Bucharest, Romania closed its operations as we intend to
commence the renovation and the refurbishment of the facility as soon as we
complete the financing for this project which is expected to occur in the third
quarter of 2005 (iii) we are on final stages of upgrading and repair works of
the Aquatopia attraction within the Astrid Park Plaza Hotel in Antwerp, Belgium;
and (iv) we are planning the construction of the Ballet Institute Building in
Budapest, Hungary to commence during late 2005. We cannot be certain that
present or future development or renovation will be successful. For successful
growth, we must be able to develop or acquire hotels on attractive terms and
integrate the new or acquired hotels into our existing operations. For acquired
hotels we must consolidate management, operations, systems, personnel and
procedures, which may not be immediately possible due to collective labor
agreements or other legal or operational obstacles. Any substantial delays or
unexpected costs in this integration process could materially affect our
business, financial condition or results of operations. We cannot be certain
that our newly acquired hotels will perform as we expect or that we will be able
to realize projected cost savings.


                                      -6-
<PAGE>
CONTINUOUS DELAYS WITH RESPECT TO RENOVATIONS OF THE PHYSICAL ENVIRONMENT
APPROXIMATE TO THE ASTRID PARK PLAZA HOTEL IN BELGIUM MAY CONTINUE TO HAVE AN
ADVERSE EFFECT ON ITS OPERATIONS.

      The Municipality of Antwerp is engaged in extensive construction in the
Astridplein, located directly opposite the Astrid Park Plaza Hotel. The
construction is intended to prepare the square to accommodate the increased
traffic which will result once the TGV services to the railway station located
adjacent to the square become operational. The completion of this construction
has been delayed several times, and has caused and continues to cause
obstructions to the access to the hotel. In the past, this had an adverse effect
on the occupancy rate at our hotel and on the performance of the Aquatopia
attraction located within the hotel. The continuation of the construction, the
permanent changes to the traffic flow around the hotel and the less convenient
access for the hotel's patrons may have an adverse effect on our results of
operations.

WE HAVE SIGNIFICANT CAPITAL NEEDS AND ADDITIONAL FINANCING MAY NOT BE AVAILABLE.

      The development, renovation and maintenance of hotels is capital
intensive. As part of our growth strategy we intend to acquire, renovate and
redevelop additional hotels and to develop new hotels. To pursue this strategy,
we will be required to obtain additional capital to meet our expansion plans. In
the past we have financed our growth through sales of assets and bank loans at
prevailing market rates. In addition, in order for our hotels to remain
competitive they must be maintained and refurbished on an ongoing basis. We may
obtain needed capital from cash on hand, including reserves, cash flow from
operations or from financing, including borrowing from banks, and sales of
assets. We may also seek financing from other sources or enter into joint
ventures and other collaborative arrangements in connection with the acquisition
or development of hotel properties. We cannot be certain that we will be able to
raise any additional financing on advantageous terms on a timely basis. This may
affect our ability to construct or acquire additional hotels or renovate
existing hotels, and we may experience delays in our planned renovation or
maintenance of our hotels.

WE DEPEND ON PARTNERS IN OUR JOINT VENTURES AND COLLABORATIVE ARRANGEMENTS.

      We own interests in six (6) operational hotels and are developing one
additional hotel (not including the Bucuresti Hotel and the Centreville
Apartment hotel in Bucharest), in partnership with other entities. We may in the
future enter into joint ventures or other collaborative arrangements. Our
investments in these joint ventures may, under certain circumstances, be subject
to (i) the risk that one of our partners may become bankrupt or insolvent which
may cause us to be unable to fulfill our financial obligations, may trigger a
default under our bank financing agreements or, in the event of a liquidation,
may prevent us from managing or administering our business, (ii) the risk that
one of our partners may have economic or other interests or goals that are
inconsistent with our interests and goals, and that such partner may be in a
position to veto actions which may be in our best interests, and (iii) the
possibility that disputes may arise regarding the continued operational
requirements of jointly owned hotels.

WE RELY ON MANAGEMENT AGREEMENTS WITH PARK PLAZA WHICH MAY NOT PROVIDE THE
INTENDED BENEFITS, AND MAY BE TERMINATED.

      All of the operating hotels in which we have an interest (other than the
Centreville Apartment hotel in Bucharest) are either directly or indirectly
operated under management agreements with Park Plaza Hotels Europe Ltd. ("Park
Plaza"). Park Plaza is the franchisee for certain territories under territorial
license and franchise agreements with Park Inn International Worldwide Hotel
Group, which entitles Park Plaza to use the "Park Plaza" tradename. Any
significant decline in the reputation of Park Plaza or in its ability to ensure
the performance of our hotels at anticipated levels could adversely affect our
results of operations. If for any reason Park Plaza loses its principal
franchise, we will automatically lose our ability to use the Park Plaza name and
other benefits, in which case we may suffer in the areas of brand name
recognition, marketing, and centralized reservations systems provided by Park
Plaza, which, in turn, could materially affect our operations. If our agreement
with Park Plaza is terminated, we would not be certain that we would be able to
obtain alternative management services of the same standard on similar or better
terms.


                                      -7-
<PAGE>
OUR AGREEMENTS WITH PARK PLAZA AND THE REZIDOR GROUP IMPOSES OBLIGATIONS ON US
THAT MAY FORCE US TO INCUR SIGNIFICANT COSTS.

      Our agreements with Park Plaza (regarding the management of the
operational hotels) and the Rezidor group (regarding the future management of
two hotels, currently under construction and/or renovation: the National Ballet
Building in Hungary, which is intended to operate under the "Regent" brand name
and the Bucuresti hotel in Bucharest, which is planned to operate under the
brand name "Radisson SAS") contain specific standards for, and restrictions and
limitations on, hotel operation and maintenance. These standards, restrictions
and limitations may conflict with our priorities, and impose capital demands
upon us. In addition, Park Plaza and the Rezidor group may alter their standards
or hinder our ability to improve or modify our hotels. In order to comply with
their requirements, or alternatively to change a franchise affiliation for a
particular hotel and disassociate ourselves from any of the "Park Plaza",
"Regent" or "Radisson" tradenames, we may be forced to incur significant costs
or make capital improvements.

THE VALUE OF OUR INVESTMENT IN OUR HOTEL PROPERTIES IS SUBJECT TO VARIOUS RISKS
RELATED TO OWNERSHIP AND OPERATION OF REAL PROPERTY.

      Our investment in the hotel properties is subject to varying degrees of
risk related to the ownership and operation of real property. The intrinsic
value of our hotels and income from the hotels may be materially adversely
affected by:

  -  changes in global and national economic conditions, including global or
     national recession;

  -  a general or local slowdown in the real property market which would make it
     difficult to sell a property;

  -  political events that may have a material adverse effect on the hotel
     industry;

  -  competition from other lodging facilities, and over-supply of hotel rooms
     in a specific location;

  -  material changes in operating expenses, including real property tax systems
     or rates;

  -  changes in the availability, cost and terms of financing;

  -  the effect of present or future environmental laws;

  -  the ongoing need for capital improvements and refurbishments; and

  -  material changes in governmental rules and policies.

THE FAILURE TO COMPLY WITH GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS.

      The hotel industry is subject to numerous national and local government
regulations, including those relating to building and zoning requirements and
fire safety control. In addition, we are subject to laws governing our
relationships with employees, including minimum wage requirements, overtime,
working conditions, and work permit requirements, and in some localities to
collective labor agreements. A determination that we are not in compliance with
these regulations could result in the imposition of fines, an award of damages
to private litigants and significant expenses in bringing our hotels into
compliance with the regulations. In addition, our ability to dismiss unneeded
staff may be hampered by local labor laws and courts which traditionally favor
employees in disputes with former employers, particularly in countries with
strong socialist histories such as Romania.

WE MAY BE HELD LIABLE FOR DESIGN OR CONSTRUCTION DEFECTS OF THIRD-PARTY
CONTRACTORS.

      We rely on the quality and timely performance of construction activities
by third-party contractors. Claims may be asserted against us by local
government and zoning authorities or by third parties for personal injury and
design or construction defects. These claims may not be covered by the
professional liability insurance of the contractors or of the architects and
consultants. These claims may give rise to significant liabilities.

ONE OF OUR HOTELS IS AFFECTED BY RISKS OF DOING BUSINESS IN SOUTH AFRICA.


                                      -8-
<PAGE>
      We own an interest in a hotel in South Africa. Conducting business in
South Africa is subject to risks, including a high crime rate, economic
instability, reduced tourism and business activities, and political uncertainty,
which have had and may continue to have an adverse effect on this hotel.

OUR OWNERSHIP RIGHTS IN THE BUCURESTI HOTEL HAVE BEEN CHALLENGED AND WE FACE
RISKS GENERALLY RELATED TO CONDUCTING BUSINESS IN ROMANIA.

      Since the acquisition of the controlling interest in the Bucuresti Hotel
complex in Bucharest, Romania, we have encountered a number of attempts to
challenge both the validity of the acquisition of the complex and our control
over the company owning the rights to the hotel. To date all of these claims
have been rejected by the courts. In addition, certain criminal proceedings have
been instituted against certain individuals involved in the privatization of the
facility, which may have an effect on the validity of the privatization and an
indirect effect on the rights acquired by us in the Bucuresti Hotel,
notwithstanding that neither Elscint nor its subsidiaries have been indicted or
are in any way involved in these proceedings. The indictment in this matter has
been returned by the court to the prosecutors office for its resubmission,
although this decision has been appealed. If any of these claims succeed, our
results of operations may be materially adversely affected.

      In addition, our Bucuresti Hotel is generally affected by risks of doing
business in Romania. Romania is a developing country that until the early 1990's
was allied with the former Soviet Union under a communist economic system. The
country, which is still economically and politically unstable, suffers from
exchange rates and inflation fluctuations, political and criminal corruption,
and lack of commercial experience and unpredictability of the civil justice
system. Romania continues to suffer from high unemployment, low wages, low
literacy rates, and corruption. These risks could be harmful to us and are very
difficult to quantify or predict.

      Romania may regulate or require governmental approval for the repatriation
of investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if there is a deterioration in its balance of payments
or for other reasons, it may impose temporary restrictions on foreign capital
remittances abroad. This may adversely affect our ability to repatriate
investment loans or to remit dividends.

RISKS RELATING TO THE ARENA

THERE ARE MANY COMPETING ENTERTAINMENT AND COMMERCIAL CENTERS.

      There are several entertainment and commercial centers in Israel in
general, and specifically in the greater Tel Aviv area which includes Herzlia.
There are two operational shopping centers within approximately 1 to 8
kilometers from the location of the Arena. These other centers compete for
customers as well as for third party retailers and operators to lease space.
There can be no assurance that we will be successful in competing with the other
entertainment and commercial centers.

WE ARE DEPENDENT ON ENGAGING THIRD PARTIES TO ENTER INTO LEASE AGREEMENTS, AND
ON OBTAINING AND RETAINING HIGH CUSTOMER TRAFFIC.

      We are dependent on our ability to induce food, clothing and other
commercial retailers and entertainment service providers to enter into leases
for units in the Arena, or to renew existing leases on favorable terms. There is
active competition to attract tenants to other locations suitable for
entertainment and commercial centers. A general economic recession in Israel may
also deter businesses from entering into new lease agreements or renewing
existing lease agreements, or from incurring the costs required to fit out their
rented units in an acceptable manner. If a significant portion of our existing
leases expire, we may find it more expensive or less profitable to continue to
operate the Arena.

WE ARE DEPENDENT ON THE PRESENCE OF ANCHOR TENANTS IN THE ARENA.

      We rely on the presence of "anchor" tenants in the Arena. Anchor stores in
entertainment and commercial centers play an important part in generating
customer traffic and making a center a desirable location for other tenants. The
failure of an anchor store to renew its lease, the termination of an anchor
store's lease, or the bankruptcy or economic decline of an anchor tenant can
have a material adverse effect on the economic performance of the Arena. There
can be no assurance that if the anchor stores at the Arena were to close or fail
to renew their


                                      -9-
<PAGE>
leases, we would be able to replace such anchors in a timely manner or without
incurring material additional costs and adverse economic effects. The expiration
of an anchor lease at the Arena may make refinancing of the Arena difficult.

THE RIGHT TO USE THE NAME "ARENA" HAS BEEN CHALLENGED.

      We were served with a motion filed by a third party seeking an injunction
to prohibit us from using the trade name "Arena" for the entertainment and
commercial center in the Herzliya Marina, on the grounds of unlawful usage of
the name, exploitation of goodwill and unfair competition. In the event that the
plaintiff's contention is upheld, we may suffer certain indirect losses and
costs in respect to the re-branding of the name of the entertainment and
commercial center.

RISKS RELATING TO OUR ASSET LEASING BUSINESS

WE ARE DEPENDENT ON A SINGLE LESSEE FOR OUR REVENUES.

      The hotel property located on Euston Road in London, England (previously
known as the Bernard Shaw Park Plaza hotel) is leased to a single lessee for a
period of 25 years in consideration for fixed rental fees for each one of the
initial four years of the lease. Early termination of this lease for any reason,
failure of the lessee to execute payments to us in respect of the lease or the
lessee's entering into liquidation may adversely affect this business and our
results of operations.

RISKS RELATING TO OUR BIOTECHNOLOGY INVESTMENT

START-UP OPERATIONS MAY BE HIGH RISK VENTURES.

      Investments in biotechnology development stage companies involve high
risks. These companies are subject to various risks generally encountered by new
enterprises, including costly, delayed or protracted research and development
programs, the need for acceptance of their products in the market place, and the
need for additional financing which might not be available. We cannot be certain
that the assessments we made at the time of investment in Gamida Cell Ltd., or
Gamida, as to the quality of the concept or the proto-type, will prove correct,
or that there will be an adequate return on investment, if at all.

OUR INVESTMENT IN GAMIDA IS SPECULATIVE IN NATURE AND WE MAY NEVER REALIZE ANY
REVENUES OR PROFITS FROM THIS INVESTMENT.

      We cannot be certain that our investment in Gamida will result in revenues
or profits. As of the date of this report, Gamida has not generated operating
revenue. Economic, governmental, regulatory and industry factors outside our
control affect Gamida. If Gamida will not successfully implement its business
plan we will not be able to realize any profits from it. Our ability to realize
profits from this investment will be dependent upon the management of Gamida,
the success of its research and development activities, the timing of the
marketing of its products and numerous other factors beyond our control.

      In addition, our investment in Gamida involves the following risks:

  -  The period of time which may elapse between the initial stage and the stage
     of development of marketable biotechnology products or services may be
     protracted.

  -  Products in the biotechnology field are required to undergo clinical tests,
     either in compliance with the requirements of the United States Food and
     Drug Administration (the "FDA") or the requirements of competent regulatory
     authorities in other countries where target markets are identified. Failure
     to obtain regulatory approvals for the marketing of such products could
     have a material adverse effect on Gamida's business, and on our investment
     in Gamida.

  -  The products and services of Gamida may face competition from alternative
     sources, many of whom have greater financial resources than it, and have
     well developed marketing networks which Gamida currently lack.

  -  The ability to receive financial resources for the further development of
     Gamida's products.


                                      -10-
<PAGE>
RISKS RELATING TO MANGO

OUR MANGO BUSINESS IS DEPENDENT ON A SINGLE FRANCHISE AND SUPPLIER WHICH COULD
CAUSE DELAYS OR DISRUPTIONS IN THE DELIVERY OF OUR MANGO PRODUCTS, WHICH COULD
HARM OUR BUSINESS AND RESULTS OF OPERATIONS.

      Mango Israel Clothing and Footwear Ltd., or Mango, an apparel company
which we acquired in May 2005, depends on its franchise with and supply of
products from Punto Fa, S.L., the contemporary women's apparel company, with its
international brand name MANGO-MNG(TM), which we refer to collectively as Mango
International. If Mango International ends its relationship with Mango or enters
into liquidation, Mango's business in Israel will be terminated. In addition,
Mango relies on the supply of its products from Mango International and may face
a shortage of inventory if there is a worldwide excess demand for Mango
International's products. If either of these events occur, they may have a
material adverse effect on our results of operations.

A RISE IN WAGE LEVELS IN ISRAEL COULD ADVERSELY AFFECT MANGO'S FINANCIAL
RESULTS.

      Mango , relies mainly on minimum wage employees. If wage levels generally,
and particularly the minimum wage in Israel, increase, Mango's results of
operations could be harmed.

THE APPAREL INDUSTRY IS SUBJECT TO CHANGES IN FASHION PREFERENCES. IF THE
MANUFACTURER OF MANGO PRODUCTS MISJUDGES FASHION TRENDS, OR IF WE FAIL TO CHOOSE
FROM THE MANGO INTERNATIONAL INVENTORY DESIGN PRODUCTS THAT WILL APPEAL TO OUR
CUSTOMERS, OUR SALES COULD DECLINE AND OUR RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED.

      Neither the manufacturer of Mango products nor Mango may be successful in
anticipating and responding to fashion trends in the future. Customer tastes and
fashion trends change rapidly. Our success depends in part on Mango
International's management's ability to effectively anticipate and respond to
changing fashion tastes and consumer demands and to translate market trends into
appropriate, saleable product offerings far in advance. If Mango International
is unable to successfully anticipate, identify or react to changing styles or
trends and misjudges the market for its products or any new product lines, or if
we fail to choose from the Mango International inventory design products that
will appeal to our customers' changing fashion preferences, Mango's sales will
be lower and we may be faced with a significant amount of unsold finished goods
inventory. In response, we may be forced to increase our marketing promotions or
price markdowns, which could have a material adverse effect on our business. Our
Mango brand image may also suffer if customers believe merchandise misjudgments
indicate that the Mango name no longer offers the latest fashions.

A CHANGE IN CUSTOMS RATES AND CUSTOM AND HARBOR STRIKES COULD ADVERSELY AFFECT
MANGO'S FINANCIAL RESULTS.

      As a result of the acquisition of Mango, we are subject to Israeli customs
since all of our Mango products are imported. An increase in customs rates on
Mango's products could adversely affect Mango's ability to compete against local
manufacturers or with products from countries which enjoy more favorable customs
rates in Israel. On the other hand, a reduction in customs rates may encourage
entrance penetration of new competitors to the market. In addition, since most
of Mango's products are imported, custom and harbor strikes and delays could
adversely affect Mango's ability to face customer demands and adversely affect
Mango's financial results.

MANGO MAY BE UNABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE WOMEN'S
APPAREL INDUSTRY, AND MANGO'S COMPETITORS MAY HAVE GREATER FINANCIAL, GEOGRAPHIC
AND OTHER RESOURCES.

      The sale of fashionable women's apparel is highly competitive. Mango
competes directly with a number of Israeli and International brands (such as
Zara, Castro, Honigman, Renuar and Dan Casidi) some of which have longer
operating histories and enjoy greater financial and marketing resources than
Mango, including the ability to obtain better geographic locations for their
stores in commercial centers, with better traffic flow and access to customers,
which has a positive impact on sales.

      Increased competition could result in pricing pressure, increased
marketing expenditures or loss of market share and adversely affect Mango's
revenues and profitability. There can be no assurance that Mango will be able to
compete successfully against existing or new competitors.

MANGO HAS NO CONTROL OVER FLUCTUATIONS IN THE COST OF THE RAW MATERIALS IT USES.
A RISE IN COSTS COULD HARM


                                      -11-
<PAGE>
MANGO'S PROFITABILITY.

      Mango buys its entire inventory from Mango International, which is
responsible for the design and manufacturing of all of Mango's products. The
prices of the inventory that Mango purchases from Mango International are
dependent on the manufacturing costs of Mango International. Mango
International's manufacturing costs are substantially dependent on the prices of
raw materials and level of wages in the countries where it manufactures its
products. Therefore, an increase in the manufacturing costs of Mango
International will cause an increase in Mango's cost of goods sold and Mango may
not be able to pass on the increased costs to its customers. This would likely
adversely affect Mango's profitability, operational results and its financial
condition.

RISKS RELATING TO OUR OPERATIONS IN ISRAEL

SECURITY AND ECONOMIC CONDITIONS IN ISRAEL MAY AFFECT OUR OPERATIONS.

      We are incorporated under Israeli law and our principal offices are
located in Israel. Political, economic and security conditions in Israel
directly affect our operations. Since the establishment of the State of Israel
in 1948, various armed conflicts have taken place between Israel and its Arab
neighbors and a state of hostility, varying in degree and intensity, has led to
security and economic problems for Israel. Israel signed a peace treaty with
Egypt in 1979 and a peace treaty with Jordan in 1994. As of the date of this
annual report, Israel has not entered into any peace agreement with Syria or
Lebanon. Since 1993 several agreements have been signed between Israel and the
Palestinians, but a final agreement has not been achieved. Since October 2000,
there has been a marked increase in hostilities between Israel and the
Palestinians, characterized by terrorist attacks on civilian targets, suicide
bombings and military incursions into areas under the control of the Palestinian
Authority. These developments have adversely affected the peace process, placed
the Israeli economy under significant stress, and have negatively influenced
Israel's relationship with several Arab countries. Some neighboring countries,
as well as certain companies and organizations, continue to participate in a
boycott of Israeli firms and others doing business with Israel or with Israeli
companies. Restrictive laws, policies or practices directed towards Israel or
Israeli businesses could have an adverse impact on the expansion of our
business. We could be adversely affected by the interruption or curtailment of
trade between Israel and its trading partners, a significant increase in the
rate of inflation, or a significant downturn in the economic or financial
condition of Israel.

MANY OF OUR DIRECTORS, OFFICERS AND EMPLOYEES ARE OBLIGATED TO PERFORM ANNUAL
MILITARY RESERVE DUTY IN ISRAEL. WE CANNOT ASSESS THE POTENTIAL IMPACT OF THESE
OBLIGATIONS ON OUR BUSINESS.

      Our directors, officers and employees who are male adult citizens and
permanent residents of Israel under the age of 49, are, unless exempt, obligated
to perform annual military reserve duty and are subject to being called to
active duty at any time under emergency circumstances. The security situation in
the Middle East has caused, and may continue to cause in the foreseeable future,
an increase in the army reserve obligations of those of our directors, officers
and employees who are subject to such reserve duty obligations. Although we have
operated effectively under these requirements in the past, including during
recent hostilities with the Palestinians and both wars in Iraq, we cannot assess
the full impact of these requirements on our workforce or business if conditions
should change.

AN INCOME TAX REFORM IN ISRAEL MAY ADVERSELY AFFECT OUR SHAREHOLDERS AND US.

      Effective as of January 2003, the Israeli Parliament has enacted a wide
ranging reform of the Israeli income tax system. These tax reforms have resulted
in significant changes to the Israeli tax system, and may have adverse tax
consequences for our shareholders and us.

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US AND OUR OFFICERS AND
DIRECTORS OR TO ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON
US AND SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS.

      All of our executive officers and directors are non-residents of the
United States, and the majority of our assets and the assets of our executive
officers and directors are located outside the United States. Therefore, it may
be difficult for an investor, or any other person or entity, to enforce a U.S.
court judgment based upon the civil liability provisions of the U.S. federal
securities laws in an Israeli court against any of those persons or to effect
service of process upon our executive officers and directors in the United
States. Additionally, it may be difficult for an investor, or any other person
or entity, to enforce civil liabilities under U.S. federal securities laws in
original


                                      -12-
<PAGE>
actions instituted in Israel.

      Israeli courts may enforce a non-appealable judgment from U.S. courts for
liquidated damages in civil matters, obtained after due process before a court
of competent jurisdiction (according to the rules of private international law
currently prevailing in Israel) which recognizes and enforces similar Israeli
judgments, provided that: (i) adequate service of process has been effected and
the defendant has had a reasonable opportunity to be heard; (ii) such judgment
and the enforcement thereof are not contrary to the law, public policy, security
or sovereignty of the State of Israel; (iii) such judgment was not obtained by
fraud and does not conflict with any other valid judgment in the same matter
between the same parties; (iv) an action between the same parties in the same
matter is not pending in any Israeli court at the time the lawsuit is instituted
in the foreign court; and (v) the judgment is no longer subject to a right of
appeal.

      Foreign judgments enforced by Israeli courts generally will be payable in
Israeli currency. The usual practice in Israel in an action to recover an amount
in a non-Israeli currency is for the Israeli court to render judgment for the
equivalent amount in Israeli currency at the rate of exchange in effect on the
date thereof. Under existing Israeli law, a foreign judgment payable in foreign
currency may be paid in Israeli currency at the rate of exchange of such foreign
currency on the date of payment or in foreign currency. Pending collection, the
amount of the judgment of an Israeli court stated in Israeli currency will
ordinarily be linked to the Israeli Consumer Price Index plus interest at the
annual rate (set by Israeli regulations) prevailing at such time. Judgment
creditors must bear the risk of unfavorable exchange rates.

OTHER RISKS RELATING TO OUR BUSINESS

OUR HIGH LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS.

      We are highly leveraged and have significant debt service obligations. As
of December 31, 2004, we had total debts to banks and other financial
institutions in the amount of NIS 1.448 billion (approximately $336 million). In
addition, we and our subsidiaries may incur additional debt from time to time to
finance acquisitions or capital expenditures or for other purposes. We will have
substantial debt service obligations, consisting of required cash payments of
principal and interest, for the foreseeable future.

      In particular, our lenders require us to maintain certain financial and
operational covenants. Our ability to comply with these covenants may be
affected by events beyond our control. A breach of any of the covenants in our
debt instruments or our inability to comply with the required covenants could
result in an event of default, which, if not cured or waived, could have a
material adverse effect on us. In the event of any default under the loan
agreements, the lenders thereunder, could elect to declare all borrowings
outstanding, together with accrued and unpaid interest and other fees. Our
substantial debt service obligations could increase our vulnerability to adverse
economic or industry conditions.

      As of December 31, 2004, we were not in compliance with certain covenants
of certain long-term credit agreements with banks, in which our share of the
debt was NIS 395.7 million. There can be no assurance that the banks will not
call for immediate repayment of this debt, or that the banks will continue to
extend the repayment schedule on this debt beyond January 2006. If we fail to
reach agreement with the banks in the future, this debt may become immediately
repayable and we may be unable to make the necessary payments or obtain
additional or replacement financing on favorable terms.

      As a result of our substantial indebtedness:

            -     we could be more vulnerable to general adverse economic and
                  industry conditions;

            -     we may find it more difficult to obtain additional financing
                  to fund future working capital, capital expenditures and other
                  general corporate requirements;

            -     we will be required to dedicate a substantial portion of our
                  cash flow from operations to the payment of principal and
                  interest on our debt, reducing the available cash flow to fund
                  other projects;

            -     we may have limited flexibility in planning for, or reacting
                  to, changes in our business and in the industry; and

            -     we may have a competitive disadvantage relative to other
                  companies in our industry with less debt.


                                      -13-
<PAGE>
      We cannot guarantee that we will be able to generate enough cash flow from
operations or that we will be able to obtain enough capital to service our debt
or fund our planned capital expenditures. In addition, we may need to refinance
some or all of our indebtedness on or before maturity. We cannot guarantee,
however, that we will be able to refinance our indebtedness on commercially
reasonable terms or at all. We have the ability under our debt instruments to
incur substantial additional indebtedness, and any additional indebtedness we
incur could exacerbate the risks described above.

FACTORS THAT AFFECT THE VALUE OF OUR REAL ESTATE ASSETS AND OUR INVESTMENTS MAY
ADVERSELY CHANGE AND THEREFORE WE WILL NEED TO CHARGE AN IMPAIRMENT LOSS NOT
PREVIOUSLY RECORDED.

      Certain specific circumstances may affect the fair value of our real
estate assets (operating or under construction) and investments. An impairment
loss not previously recorded may be required and/or depreciation may be
accelerated, upon the occurrence of one or more of the following circumstances:
(I) Strategy in respect of long term lease commitments. In the commercial
center, where a significant part of the rental areas is subject to long term
leases with a small group of retailers which is distinguished (from other
lessees) by a direct correlation between the rental fees paid by such retailer
and the revenues from their respective rental areas, we may be exposed to a risk
of rental fees' rates being significantly lower than originally anticipated. A
material decline in the long run in the business operations of such retailers
may therefore, have an adverse affect on the results of operations of the
commercial center as well as on its recoverable amount. In addition, the rental
areas which have not been fully rented or which we have designated for an
interim period as free of charge public areas, may be required to alter their
original designation of use so as to serve, in an optimal manner, our strategy
for the center. Should these areas remain vacant or public, for a period longer
than originally anticipated, our long-term cash flows may be negatively impacted
and, as a result, it may decrease the value of the center; (II) External
Interruptions. Circumstances having significant impact on our real estate may
include extensive and continuous infrastructure works carried out by
municipalities or other legal authorities. Delays in completion of such works,
beyond the anticipated target, may cause harm and damages to the results of
operations of the real estate; (III) Legal Issues and Other Uncertainties.
Lawsuits that are pending, whether or not we are a party thereto, may have a
significant impact on one of our hotels and/or on certain of our shareholding
rights in investee companies; certain laws and regulations, applicable to our
business in certain countries where the legislation process undergoes constant
changes, may be subject to frequent and substantially different interpretations.

      Since market conditions and other parameters (such as macroeconomic
environment trends, and others), which affect the fair value of our real-estate
and investment, vary from time to time, the fair value may not be adequate on a
date other than the date the measurement was executed (immediately prior to the
balance sheet date). In the event the projected forecasts regarding the future
cash flows generated by those assets are not met, we may have to record an
additional impairment loss not previously recorded.

      In the event any of the aforementioned circumstances occur, such as: a
construction permit is denied or revoked; alternative solutions to such denial
are proven unviable or unworthy; lease periods are shortened or agreements are
terminated with no compensation or in the extreme event we are required to
demolish our constructed project while suffering additional expenses as a
result; a decline occurs in business operations of retailers or designation of
areas changes, external factors affect results of operations of our real estate
assets; legal proceedings are determined to our detriment; then and in such
circumstances, the value of our rights in and to the respective real estate
and/or shareholding interests may be adversely affected and we would need to
record an impairment loss on such assets not previously recorded.

OUR RESULTS OF OPERATIONS FLUCTUATE DUE TO THE SEASONALITY OF OUR BUSINESS AND
OTHER FACTORS.

      Our revenues and results of operations of our hotels and leisure and Arena
businesses, and in our Mango business, our inventory levels, fluctuate on a
seasonal basis. We are subject to (i) general business activity fluctuations
that result in traffic changes in our hotels, commercial centers and stores,
(ii) vacation and holiday seasons (such as summer, Christmas and Easter) and
(iii) the influence of weather conditions. These factors may especially affect
our revenues and results of operations in the first and third quarters. We
experience major seasonal fluctuations in our net sales and operating income,
with a significant portion of our revenue typically realized during sales
discount seasons (in December - January with respect to the winter season and
June- July with respect to the summer season). Any decrease in sales or margins
during this period could have a disproportionate effect on our


                                      -14-
<PAGE>
financial condition and results of operations.

      In the Arena business, a weak holiday shopping season would adversely
affect our profitability. The annual revenues and earnings of the entities that
have leased or will lease space in the Arena, as well as of prospective lessees,
are substantially dependent upon the amount of traffic in the Arena during the
holiday shopping periods (such as Passover generally in the second quarter, the
Jewish New Year and other Jewish and national holidays generally in the third
and fourth quarter), which may affect their ability to satisfy their rental
obligations. As a result, changes in the level of traffic in the Arena during
this period may have a disproportionate effect on the annual results of
operations of the entities that lease space in the Arena. This may give rise to
tenants going out of business, defaulting on their lease agreements or otherwise
being unable to fulfill their obligations towards us, which may have a material
adverse effect on our business. In addition, general economic recession in
Israel, as well as the deteriorating security situation in the Middle East and
terrorist attacks on civilian targets in Israel could cause a slowdown in
customer traffic and consumer purchasing patterns.

      Mango's revenues and operating results fluctuate on a seasonal basis. A
significant portion of Mango's revenues typically realized during discount sales
in December-January in respect to the winter season and in June-July in respect
to the summer season. Any decrease in revenues during these periods could have a
disproportionate effect on our financial condition and results of operations.

      Seasonal fluctuations also affect inventory levels in our Mango business,
since we usually order merchandise in advance before new fashion trends are
confirmed by customer purchases. If we are not successful in selling inventory
during the regular season, we may have to sell the inventory at significantly
reduced prices or it may not be able to sell the inventory at all.

OUR BUSINESSES AND OPERATING RESULTS MAY BE IMPACTED BY EXCHANGE RATE
FLUCTUATIONS.

      The revenues of our hotels and leisure divisions are generally denominated
in the currency in which an asset is located. Therefore, the strengthening of
the Euro or the GBP against the US Dollar may cause a general slow-down of
non-European and non-UK tourism into the Euro Monetary Block and the United
Kingdom, as the room rates when calculated in US Dollars are more costly for the
non-European or non-UK tourist, which has a negative impact on tourism patterns.

      Fluctuations in the exchange rates between these currencies and the NIS
may have an adverse effect on our operating results as reflected in our
consolidated financial statements, which are reported in NIS. While we seek to
mitigate the impact on us of an NIS devaluation (including by linking financing
transactions specifically to the relevant operating currency), we cannot be
certain that we will be able to do so successfully. In addition we are exposed
to exchange and interest rates fluctuations that may adversely effect our
finance expenses.

      In addition, Mango's products are purchased from or Mango International,
in Spain in Euros and sold in Israel in NIS. Devaluation of the exchange rate of
the NIS against the Euro will increase our cost of goods in our reported
currency, the NIS, and may have an adverse effect on Mango's gross profit and
financial results.

WE EXPECT TO GROW INTERNALLY AND THROUGH ACQUISITIONS AND WE MAY NOT BE ABLE TO
MANAGE OUR GROWTH.

      We expect to grow internally and through acquisitions. We expect to spend
significant time and effort in (i) renovating or refurbishing existing hotels,
(ii) identifying, completing and integrating acquisitions and (iii) developing
new properties. Any future growth in our business will impose significant added
responsibilities on members of our management, including the need to identify,
recruit and integrate new managers and executives. We cannot be certain that we
will be able to identify and retain additional management and other professional
personnel with appropriate qualifications or at all.

OUR PROPERTIES MAY NOT NECESSARILY BE DISPOSED OF QUICKLY OR WHEN SUCH
DISPOSITION IS REQUIRED OR ADVANTAGEOUS.

      It is generally difficult to quickly sell real estate investments. As a
result, our ability to vary our portfolio in response to changes in economic and
other conditions may be limited by circumstances over which we exercise no
control. We cannot be certain that we will be able to sell a properties when we
find such disposition


                                      -15-
<PAGE>
advantageous or necessary or that the sale price of a disposition will be equal
to or higher than the amount of our original investment.

WE MAY BE CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY AND, AS A RESULT,
OUR U.S. SHAREHOLDERS MAY SUFFER ADVERSE TAX CONSEQUENCES.

      Generally, if for any taxable year 75% or more of our gross income is
passive income, or at least 50% of our assets are held for the production of, or
produce, passive income, we would be characterized as a passive foreign
investment company ("PFIC") for U.S. federal income tax purposes. This
characterization could result in adverse U.S. tax consequences to our
shareholders, including having gain realized on the sale of our ordinary shares
be treated as ordinary income, as opposed to capital gain income, and having
potentially punitive interest charges apply to such sale proceeds. U.S.
shareholders should consult with their own U.S. tax advisors with respect to the
United States tax consequences of investing in our ordinary shares.

      We believe that we were not a PFIC for U.S. federal income tax purposes
for our 2004 tax year. It is possible that the Internal Revenue Service will
attempt to treat us as a PFIC for 2004 or prior years. The tests for determining
PFIC status are applied annually and it is difficult to make accurate
predictions of future income and assets, which are relevant to this
determination. Accordingly, there is no assurance that we will not become a PFIC
in 2005 or in subsequent years. For a discussion of how we might be
characterized as a PFIC and related tax consequences, please see the section of
this annual report entitled "Taxation -- U.S. Federal Income Tax
Considerations."

COMPLYING WITH EXISTING AND FUTURE ENVIRONMENTAL LAWS, ORDINANCES AND
REGULATIONS MAY INVOLVE MATERIAL COSTS.

Our operating costs may be affected by the obligation to pay for the cost of
complying with existing or newly promulgated environmental laws, ordinances and
regulations. If any future environmental laws are adopted in any country in
which we operate, we may at various times be required to pay amounts to comply
with these laws, which amounts are not capable of assessment at this time but
which may be significant. Under environmental laws in effect in jurisdictions in
which we operate, a current owner or operator of real property may be liable for
the costs of removal or remediation of hazardous or toxic substances on, under
or in the property, even if they relate to periods prior to our ownership. These
laws often impose liability whether or not the owner knew of, or was responsible
for, the presence of hazardous or toxic substances. Environmental laws also may
impose restrictions on the manner in which property may be used or transferred
or in which businesses may be operated, and these restrictions may require
expenditures or affect operations. In connection with operating, we potentially
may be liable for any such costs. The cost of defending against claims of
liability or remediating contaminated property and the cost of complying with
environmental laws could materially adversely affect our business and results of
operations.

LOSSES FOR WHICH WE ARE NOT INSURED OR FOR WHICH WE DO NOT HAVE SUFFICIENT
INSURANCE COVERAGE COULD RESULT IN SIGNIFICANT LOSSES IN OUR BUSINESS.

      We maintain comprehensive insurance on each of our real estate assets,
including third party liability, fire and extended coverage of the type and
amount we believe is customarily obtained, in consultation with insurance
experts. However, there are types of losses, generally of a catastrophic nature
(such as earthquakes and floods), that may be uninsurable or too expensive to
insure. We consult with insurance experts and apply customary standards in
determining amounts, coverage limits and deductibility provisions of insurance,
with a view to obtaining appropriate insurance on our real estate assets at a
reasonable cost and on suitable terms. This may result in insurance coverage
that could be insufficient to pay the full current market value or current
replacement cost of a loss. Inflation, changes in building codes and ordinances,
environmental considerations and other factors also might make it unfeasible to
use insurance proceeds to replace a real estate after it has been damaged or
destroyed. Under these circumstances, the insurance proceeds we receive might
not be enough to restore our economic position with respect to a damaged or
destroyed real estate. In addition, property and casualty insurance rates may
increase depending on claims experience, insurance market conditions and the
replacement value of our real estates. Furthermore, future insurance proceeds
are typically pledged in favor of banks that provide loans to us and our
subsidiaries and other affiliates, and therefore, would not necessarily be
available to us, our subsidiaries and other affiliates upon payment.

WE ARE DEPENDENT ON OUR SENIOR MANAGEMENT.


                                      -16-
<PAGE>
      We place substantial reliance on the hotels and leisure industry, real
estate development and biotechnology investment experience and the continued
availability of our senior management. We believe that our future success and
our ability to manage future growth depends in large part upon the efforts of
our senior management and on our ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and we cannot
assure you that we will be successful in attracting and retaining such
personnel. We do not carry key person insurance on any of our senior management.

WE ARE SUBJECT TO VARIOUS LEGAL PROCEEDINGS THAT MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS.

      Following the sale of substantially all of our assets in 1998, we were
served with various claims filed by former and current shareholders and
employees of Elscint in Israel and in the United States relating to the
negotiations preceding the transactions and the transactions themselves. Some of
the plaintiffs filed motions to recognize the claims as class actions. In
addition, certain other legal proceedings have been initiated against us in
connection with the change of our control in May 1999 and the acquisition of our
hotel businesses in September 1999, including motions to recognize such claims
as class actions. We cannot estimate the results of these proceedings. A
determination against us in some or all of the proceedings may materially
adversely affect our operating results.

      ITEM 4. -- INFORMATION ON THE COMPANY

      A. HISTORY AND DEVELOPMENT OF THE COMPANY

      Elscint was incorporated in Israel in 1969 and has a perpetual duration.
Our registered offices are located at 13 Mozes Street, Tel Aviv 67442, Israel.
You may reach us by telephone at: 972-3-608-6020 or by fax at 972-3-696-2022.

      Elscint is engaged in the following businesses:

      Ownership and operation of hotels in Europe and elsewhere and construction
      of hotel projects through wholly owned and jointly controlled subsidiary
      companies;

      Ownership, operation and management of the Arena commercial and
      entertainment center;

      Asset leasing;

      Investment in a biotechnology company; and,

      Ownership, operation and management of the apparel company Mango, since
      May 2005.

RECENT DEVELOPMENTS

      The following are the highlights of our business activities and
investments during 2004 and through the date of this filing :

      -     On June 8th, 2005, we announced that an independent committee of our
            parent company, Elbit Medical Imaging, or EMI, approached us
            regarding a possible combination of the two companies in a
            share-for-share transaction, whereby EMI would acquire the shares of
            Elscint it does not already own. As a result of this action, we
            established our own Independent Committee to discuss and review the
            proposal, and if deemed appropriate, to negotiate the terms and
            conditions upon which such a transaction may be concluded. On June
            20, 2005, the independent committee of EMI approached our
            independent committee to begin negotiations on the transaction and
            also offered an initial proposal to acquire all our ordinary shares
            not already owned by EMI in a share-for-share transaction pursuant
            to which each ordinary share of Elscint will be exchanged for 0.40
            ordinary shares of EMI. The average closing price of the Elscint and
            EMI ordinary shares on the New York Stock Exchange and on the Nasdaq
            National Market, respectively, during the 30-day period ending on
            June 8, 2005 (the date of the first announcement of this potential
            transaction) was US$5.78 and US$18.00, respectively. The


                                      -17-
<PAGE>
            independent committee appointed financial and legal advisers to
            evaluate the fairness of the proposal on behalf of Elscint
            shareholders. Should the parties decide to carry out the
            transaction, it will be subject to inter alia, (i) the execution of
            a definitive agreement, (ii) the approval of the audit committee,
            board of directors and shareholders of both companies, (iii) court
            approval in accordance with Sections 350 and 351 of the Israeli
            Companies Law 1999, and (iv) the receipt of any other approvals
            required by law. There is no assurance that the independent
            committees of us and EMI will continue discussions with respect to
            this transaction, or that if our independent committee do continue
            discussions with EMI's independent committee, the transactions will
            be agreed upon or consummated (pursuant to the aforementioned terms
            or at all).

      -     The signing of management agreements, in June 2004, with the Rezidor
            Group regarding the future management of two hotels presently under
            development, namely the "Ballet Institute" building in Budapest
            (which will be operated under the "Regent" trade name), and the
            Bucuresti Hotel in Bucharest (which will be operated under the
            "Radisson SAS" trade name). The operator will commence management of
            these hotels following the completion of the renovation of the
            respective facilities. Both agreements are for 20 year periods, on
            customary market terms. Under both agreements, the operator has
            guaranteed minimum return at rates and subject to terms and
            conditions specified in the agreements that are customary to
            agreements of this type.

      -     Opening of the Riverbank Park Plaza Hotel in April 2005.

      -     The acquisition of Mango, the owner of eight retail stores in Israel
            which sells women's apparel that is purchased from Mango
            International a Spanish apparel company that designs, manufactures
            and markets clothing and accessories for women under the retail
            brand name MANGO-MNG(TM) .

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

FISCAL YEAR 2004

      In 2004, Elscint made the following capital expenditures and divestitures
(Elscint's share of each expenditure and divestment is 100% unless otherwise
indicated):

      HOTELS AND LEISURE

      Riverbank Park Plaza Hotel

      The total additional amount invested by Elscint's jointly controlled
subsidiary in this project during the year ended December 31, 2004 was GBP 34.0
million (approximately $ 65.9 million) of which our share was 50%. These amounts
were expended principally on construction. We are financing the construction of
the hotel through long term bank facilities and our available funds. (See "Item
5 - Operating and Financial Review and Prospects - Loans")

      Apartment Hotel Bucuresti Complex (Centreville)

      The total amount invested by Elscint's subsidiary in the renovation of the
hotel apartment in the Bucuresti complex during the year ended December 31, 2004
was Euro 2.0 million (approximately $ 2.7 million). Elscint's subsidiary
financed these costs through short-term facility and available free cash flow
from the operations of the Centraville apartment hotel.

      THE ARENA

      The total additional amount invested by Elscint's subsidiary in this
project during the year ended December 31, 2004 was approximately $5.7 million.
This amount was principally expended on construction works. We financed these
costs mainly through available free cash flow from operations and our available
funds.


                                      -18-
<PAGE>
FISCAL YEAR 2003

      In 2003, Elscint made the following capital expenditures and divestitures
(Elscint's share of each expenditure and divestment is 100% unless otherwise
indicated):

      HOTELS AND LEISURE

      Riverbank Park Plaza Hotel

      The total additional amount invested by Elscint's jointly controlled
subsidiary in this project during the year ended December 31, 2003 was GBP 22.6
million of which our share was 50%. These amounts were expended principally on
construction. We are financing the construction of the hotel through long term
bank facilities and our available funds.

      Astrid Park Plaza Hotel

      The total cost of the construction of the Aquatopia within the facility
was approximately Euro12.5 million. During 2003 Elscint's subsidiary invested
Euro 11.1 million in this project. We financed these costs mainly through our
available funds.

      Apartment Hotel Bucuresti Complex (Centreville)

      The total amount invested by Elscint's subsidiary in the renovation of the
hotel apartment in the Bucuresti complex during the year ended December 31, 2003
was Euro 3.1 million.

      THE ARENA

      The total additional amount invested by Elscint's subsidiary in this
project during the year ended December 31, 2003 was approximately $48.3 million.
This amount was principally expended on construction. We financed these costs
mainly through a bank facility.

FISCAL YEAR 2002

      In 2002, Elscint made the following capital expenditures and divestitures
(Elscint's share of each expenditure and divestment is 100% unless otherwise
indicated):

      HOTELS AND LEISURE

      Riverbank Park Plaza Hotel

      The total additional amount invested by Elscint's jointly controlled
subsidiary in this project during the year ended December 31, 2002 was GBP 13.4
million of which our share was 50%. These amounts were expended principally in
respect of planning, design and construction. We financed these costs mainly
through short term bank facilities.

      Andrassy

      The total amount invested by Elscint's jointly controlled subsidiary in
the project during 2002 (including obtaining full and clean title) was
approximately Euro 1.1 million of which our share was 50%.

      Astrid Park Plaza Hotel

      The cost of the completion and of the renovation works at the Astrid Park
Plaza hotel in Antwerp, Belgium and the commencement of construction of the
Aquatopia within the facility was approximately Euro 2.6 million.

      THE ARENA

      The total additional amount invested by Elscint's subsidiary in this
project during the year ended December 31, 2002 was $12.7 million. These amount
were expended principally on construction of the facility.


                                      -19-
<PAGE>
      BIOTECHNOLOGY INVESTMENT

      In April 2002, EBM acquired from a third party 450,000 additional ordinary
shares in Gamida for approximately $1.0 million.

      SUB-ASSEMBLY AND MANUFACTURING FACILITY

      On December 31, 2002 the Company sold (on the basis of an agreement signed
on November 13, 2002), substantially all of the assets and assigned certain
liabilities relating to the manufacturing, development, assembly, engineering
and integration operations conducted by Elscint at the factory in Ma'alot in
Northern Israel. The buyer did not assume tax liabilities, liabilities arising
out of breaches by Elscint of assigned contracts, employee related liabilities
for the period preceding the consummation of the transaction, and certain
retained environmental liabilities. On the basis of the closing balance sheet,
the buyer paid approximately $20.5 million, including a payment in respect to
goodwill. As a result of this transaction, Elscint recorded a capital gain of
approximately $8 million.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES CURRENTLY IN PROGRESS OR PLANNED

      During 2005, we either made, are in the process of making, or are planning
to make, additional capital expenditures, as follows (Elscint's share of each
expenditure and divestment is 100% unless otherwise indicated):

      HOTELS AND LEISURE

      Riverbank Park Plaza Hotel

      The additional amount invested by the Elscint's jointly controlled
subsidiary in this project through May 2005 was GBP 9.9 million of which our
share was 50%. The estimated cost for the completion of this project is
approximately GBP 6.1 million of which our share is 50%.

      Bucuresti Hotel Complex, Bucharest, Romania - Renovation Planned

      We intend to extensively renovate the Bucuresti Hotel in order to enable
compliance with the international standards required for a four star business
hotel. As of May 31, 2005, the renovation program was in an advanced stage of
preparation. The estimated cost for the renovation of this project is Euro 36.5
million, which we financed and intend to further finance through bank loans and
equity investments.

      Andrassy

      We intend to extensively renovate the Andrassy Hotel in order to enable
compliance with the international standards required for a four star business
hotel. As at May 31, 2005, the renovation program was in an advanced stage of
preparation. The estimated cost for the renovation of this project is Euro 25
million of which our shares is 50%, which we intend to finance through bank
loans and equity investments.

      Astrid Park Plaza

      At the beginning of 2005, we closed the Aquatopia attraction within the
Astrid Park Plaza facility for the purpose of re-designing it. The estimated
cost for this project is Euro 2.2 million, which we intend to finance through
equity investments. As of May 31, 2005, we substantially completed this project.

      MANGO - ACQUISITION

      In May 2005, the Company completed a transaction for the acquisition of
100% of the equity and voting rights of Mango (including an option to purchase
another retail store) in consideration for Euro 2.85 million (see "Business
Overview" above). As of June 30, 2005, we paid an amount of Euro 2.9 million,
including payment in respect of inventory and the acquired company net monetary
assets as presented in Mango's closing balance sheet) and will pay an additional
amount of Euro 150,000 in two equal installments at the end of year 2005 and
2006.


                                      -20-
<PAGE>
      OTHERS

      Channel 2 - Tender: On November 29, 2004, a binding Term Sheet was
executed by Elscint, and Elscint's parent company, Elbit Medical Imaging, or
EMI, (in equal parts) on one hand, and Taya Communications Ltd. ("Taya") on the
other hand, for the establishment of a 50% joint venture called Canne, to a bid
in the tender published by the Second Television and Radio Authority for the
award of a license for the operation of the "Channel 2" television channel in
Israel for a 10 year period (the "Term Sheet"). The tender bid was submitted at
the end of January 2005. Elscint's share in the total aggregate costs of the
joint venture up to completion of the tender bid amounted to NIS 2.5 million.
(out of which NIS 0.85 million was expended, through December 31, 2004). In
April 2005, the Second Television and Radio Authority informed Canne that it was
not included among the winning groups in the tender.

      B. BUSINESS OVERVIEW

DESCRIPTION OF THE NATURE OF THE COMPANY'S OPERATIONS AND ITS PRINCIPAL
ACTIVITIES:

      HOTELS AND LEISURE

      The goal of our hotel business is to acquire and manage, via an unrelated
third party management company, four star hotel properties which provide the
business and vacation traveler with five star quality accommodations,
conveniently located near major transportation stations, at four star hotel
prices. Elscint's ownership percentage in its hotels varies, and the remaining
interests in those hotels that are not wholly-owned by Elscint are owned by
various unrelated third parties, including subsidiaries of the Red Sea group of
companies.

      Set forth below is our percentage ownership and other certain information
relating to our hotels:

<TABLE>
<CAPTION>
                           ELSCINT'S                 AVERAGE
                            HOLDING                 OCCUPANCY
 NAME AND RATE OF HOTEL   PERCENTAGE  TOTAL ROOMS  DURING 2004   OTHER INFORMATION
------------------------  ----------  -----------  ------------  ------------------
<S>                       <C>         <C>          <C>           <C>
Victoria Hotel,               50%     305 (27          93%       -  business center
Amsterdam, The                        Suites)                    -  health center
Netherlands - Four Star

Utrecht Park Plaza            50%     120 (40          74%       -  70 parking
Hotel, Utrecht, The                   executive                     spaces
Netherlands - Four Star               rooms)                     -  11 conference
                                                                    rooms

Astrid Park Plaza Hotel,     100%     229 (19          74%       -  includes an
Antwerp, Belgium - Four               business                      oceanarium
Star                                  suites)                       attraction
                                                                    (Aquatopia)
                                                                 -  12 boardrooms
                                                                 -  18 conference
                                                                    rooms

Centreville Hotel             70%     230              89%       -  fully
Apartments                                                          operational
                                                                    since May,
                                                                    2003.

Sherlock Holmes Hotel,   45% equity   119 (17          83%       -  fitness center
London - Four Star       50% voting   executive                  -  main meeting
                                      studios, 3                    room for 600
                                      split level                   people
                                      "loft" suites)             -  6 board rooms


</TABLE>


                                      -21-
<PAGE>
<TABLE>
<CAPTION>
                           ELSCINT'S                 AVERAGE
                            HOLDING                 OCCUPANCY
 NAME AND RATE OF HOTEL   PERCENTAGE  TOTAL ROOMS  DURING 2004   OTHER INFORMATION
------------------------  ----------  -----------  ------------  ------------------
<S>                       <C>         <C>          <C>           <C>
Victoria Park Plaza           50%     287 (22          87%       -  Executive
Hotel, London  -Four                  business                      lounge
Star Deluxe                           suite and                  -  health center
                                      12 main                    -  main
                                      suites)                       conference
                                      and 12                        room for up to
                                      apartments                    750 people
                                                                 -  13 additional
                                                                    conference
                                                                    rooms
                                                                 -  underground
                                                                    parking
                                                                    facilities

Riverbank Park Plaza      45% equity  396 and an   soft opening  -  full leisure
Hotel, London - Four      50% voting  additional   since April      center
Star Deluxe                           66               2005      -  two main
                                      apartment                     conference
                                      hotel                         rooms, each
                                      luxury                        with capacity
                                      suites                        of up to 650
                                                                    people
                                                                 -  20 additional
                                                                    conference
                                                                    rooms

Sandton Park Plaza          33.33%    138 (61          53%       -  business center
Hotel, Johannesburg -                 suites)
Four Star

Ballet Building Project,      50%     199               -        -  The hotel is
Budapest, Hungary                                                   under
                                                                    development in
                                                                    final stage of
                                                                    planning

Bucuresti Hotel,              70%     438               -        -  The hotel is
Bucharest, Romania -                                                closed for
Four Star                                                           renovation
</TABLE>


      BEA Hotels N.V,, a wholly owned subsidiary of Elscint, or BEA, was granted
an option from Park Plaza, exercisable until December 31, 2005, to purchase from
Park Plaza 33% of the ownership and controlling rights in a company under its
ownership, which was incorporated to acquire the business (including tangible
assets, hotel management agreements, management rights, rights to use trade
names, etc.) of the Park Plaza chain in Europe (hereinafter "the acquired
company"). As part of the agreement, BEA granted Park Plaza two loans in the
aggregate amount of $5 million. The terms of the loans are as follows: (i) a
loan of $1.67 million linked to the U.S. Dollar, which bears annual interest at
the rate of Libor plus 1% and (ii) an additional loan of $3.33 million in
exchange for an option to convert the principal of $3.33 million into shares of
the acquired company. As part of this agreement, if BEA decides not to exercise
the option, the additional loan of $3.33 million would have the same terms of
the $1.67 million loan described above. As security for the repayment of the
loans, Elscint will hold back amounts payable to Park Plaza with respect to Park
Plaza's rights in Elscint's hotels, except for management fees of the hotels. In
addition, BEA and Elscint agreed to provide the acquired company with a loan of
up to an additional $2.25 million, if and to the extent this amount is required
for the purchase of other assets by the acquired company. As part of this
agreement, Park Plaza has an option, exercisable at any time prior to December
31, 2005, in the event of disagreement between the parties regarding Park
Plaza's rights, to acquire BEA's shares in the acquired company in consideration
for the refund of the cost of BEA's original investment.

      During 2004, Elscint also continued its plans for the development of two
additional hotel projects. In Hungary, we made progress on the project for the
conversion of the former National Ballet Institute Building, centrally located
on Budapest's prestigious Andrassy Boulevard, into a western business orientated
hotel. We expect the construction to commence during late-2005, and to be
completed within 24 months thereafter. In addition, we are in the final stage of
planning the Bucuresti Hotel's renovation in order to enable compliance with the
international standards required for a four star business hotel.

      The construction of the "Riverbank Park Plaza Hotel" on the site acquired
in March 2000 on the bank of the Thames River has continued through 2004 and was
partially opened to the public in April 2005.

      Elscint's business concept and growth strategy for its hotels and leisure
business include the following key

                                      -22-
<PAGE>
elements:

         -  Our hotels are generally situated in close proximity to major
            railway links into cities, such as the central railway station in
            Amsterdam (situated across from our Victoria Hotel), the central
            railway station in Antwerp (situated close to our Astrid Park Plaza
            hotel) and the Victoria railway station in London (situated close to
            our Victoria Park Plaza hotel). The London and Antwerp stations are
            scheduled to accommodate the services of the Train De Grand Vitesse
            (the "TGV"), when such services become operational in those areas.

         -  Our hotels make considerable efforts to offer personal services at a
            five-star level but at four-star level prices.

         -  Our hotels' principal target customer base is the business traveler
            and the tourist industry, both individuals and groups.

         -  Our hotels focus on strategic cooperation and affiliation with
            management companies with know-how and expertise in hotel
            management, which enables optimal use of a centralized reservation
            system, and which provides the advantage of a unified management
            system that promotes the efficiency of the operation and control of
            hotels in diverse locations.

         -  Our strategy for the hotel business is increasing the number of
            hotel rooms in both Western and Eastern Europe, with emphasis on
            those cities in which a shortage of rooms exists, or where a
            shortage of quality rooms exists. This strategy is being implemented
            both by the acquisition and renovation of existing operational
            hotels and by the construction and development of new hotels on land
            purchased or leased in optimal locations. Where appropriate, Elscint
            may draw on the experience and resources of its group affiliates to
            develop integrated projects which will include hotels and
            entertainment and commercial centers, subject to applicable
            restrictions.

      ARENA

      The Arena is located in the heart of, and faces, the Herzlia Marina, which
is one of the most prestigious land development projects in Israel. The Arena
draws its customers from the northern parts of Greater Tel Aviv (including the
northern satellite cities of Herzlia, Ra'anana and Kfar Sava) as well as the
suburbs of northern Tel Aviv, attracting a potential customer base of
approximately 1,500,000 to 2,000,000 residents. The Arena offers "brand name"
retail stores, a variety of entertainment and leisure activities, a food court
with more fast and higher-end food establishments than in any other single
building in Israel, a multi-screen cinema complex, an active water-ride, a rain
forest attraction and a video game arcade. In addition, the Arena includes
numerous children and teen-oriented entertainment areas, restaurants, cafes and
retail stores.

      The principal features of our business strategy for the Arena include:

         -  The creation of a distinctively aesthetic and architecturally
            pleasant structure, with emphasis on "customer friendliness", at a
            prime and unique location overlooking the Herzlia Marina and the
            shores of the Mediterranean Sea;

         -  An aggressive marketing campaign to attract recognized "brand-name"
            retailer and entertainment service provider tenants;

         -  Offering a wide range of quality entertainment facilities, together
            with an impressive variety of retail opportunities, and;

         -  In order to promote customer traffic, the Arena is administered,
            operated and managed by a division within Elscint, which formulates
            a program designed to

                                      -23-
<PAGE>
            foster the interest and involvement of the patrons in the activities
            of the Arena, including special price reduction campaigns,
            entertainment and fashion events and contests.

      ASSET LEASING

      The hotel property located on Euston Road in London, England (previously
Bernard Shaw Park Plaza) was leased from January 2003 to Accor SA, or Accor, a
company engaged in the hotel business, for a period of 25 years in consideration
for fixed rental fees for each one of the initial four years of the lease.
Commencing the fifth year and throughout the term of the lease period, rental
fees are to increase at the annual rate of 2.5%. The payments are guaranteed by
a deposit in the amount of L 2.5 million (the Company's share - L 0.75 million).
Accor was granted an option to extend the lease by two consecutive periods of 15
years each.

      BIOTECHNOLOGY INVESTMENTS

      Since its establishment in early 2000, Elscint Bio-Medical Ltd. ("EBM"), a
wholly owned subsidiary of Elscint, has focused on investments in early stage
biotechnology companies. During 2001 and 2002, EBM expanded its investment in
Gamida, an Israeli company that engages in the expansion of hematopoietic
(blood) stem cells therapeutics in clinical development for cancer and
autoimmune diseases, as well as future regenerative cell-based medicines
including cardiac and pancreatic repair. Cord blood stem cells have the ability
to treat the same diseases as bone marrow with significantly less rejection. In
addition, stem cells could become the vehicle of choice for gene therapy and,
ultimately, be used for tissue regeneration.

      EBM holds approximately 33.4% of the outstanding shares of Gamida
(approximately 30.4% on a fully-diluted basis) (after EBM exercised its option
in May 2005 to receive an additional approximately 0.7% of the outstanding
shares of Gamida for $0.2 million). EBM has the right to appoint one quarter of
the members of Gamida's board of directors.

      In May 2003, Teva Pharmaceuticals Ltd., or Teva, invested $3 million in
Gamida in exchange for approximately 9% (on a fully-diluted basis) of Gamida's
outstanding share capital. Gamida also signed a memorandum of understanding with
Teva, granting Teva an option for future cooperation with Gamida in respect of
certain products that are the subject matter of Gamida's developing technology
("the products"), and subject to agreed upon conditions. On February 16, 2005,
Teva elected to exercise its option through the establishment of a joint
venture, or JV, through which Teva shall invest, subject to completion of the
transaction and the execution of a detailed agreement between the parties, up to
$25.0 million (in installments subject to achieving various agreed upon
milestones). Funding provided by the investment will be used to achieve
completion of the development, manufacturing and commercialization of the
products. Gamida has granted to the JV, within the framework of the memorandum
of understanding, a sole and exclusive worldwide license to develop, manufacture
and use the technology and other intellectual properties related to the
products. Gamida has also granted Teva the right of first look (by exercising of
this right by Teva means the election of Teva to include certain additional
products or technology in the cooperation) with respect to any and all Gamida's
development and/or invention that is not in the framework of the JV. Other
amounts, to the extent required, in order to finance the completion of the JV's
objectives, shall be provided in equal parts, by Teva and Gamida. The closing of
the transaction and the execution of a definitive agreement are expected to be
carried out during the second half of 2005.

      EBM was bound in the past by agreements with a company controlled by its
former Chief Executive Officer, or the CEO, , entitling him to shares
representing 2% of EBM's issued and paid-up capital, in consideration for their
nominal value. The agreement also provided that EBM would invest 92% and the
CEO's company would invest 8% in venture capital investments. The CEO's
company's investment would be financed by a dollar-linked non-recourse loan
bearing LIBOR+1% interest from EBM. In the event of cancellation of this
agreement (or another agreement between the parties for the provision of
consulting services), EBM would be entitled, under certain conditions, to
acquire all or any of the CEO's company's holdings in the venture capital
investments and in EBM at cost or at market value, as relevant (depending on the
purchase date).

      In November 2002, the employment agreement between EBM and its CEO was
terminated. Pursuant to the termination agreement, EBM transferred to itself the
CEO's rights in EBM and its portfolio investee companies, in consideration for
the repayment of the loans provided by EBM to the CEO.

                                      -24-
<PAGE>
      A dispute arose between the parties, with the CEO contending that EBM had
lost its right to acquire his holdings, claiming the deadline according to the
agreement for giving notice to acquire had expired. EBM's management disputes
this contention and is acting to realize its rights under the agreement. The
parties have yet to sign a full and final agreement for the waiver and/or
settlement of their mutual claims. EBM's management estimates that in any event,
it will not incur significant costs from the termination of the agreements,
beyond those reflected in the financial statements.

      Concurrently with the termination of the employment agreement of the CEO,
EBM's management postponed for the foreseeable future further investment
opportunities in biotechnology related companies, other than Gamida, pending its
re-assessment of the market situation.

      MANGO

      In May 2005, Elscint completed the acquisition of 100% of the equity and
voting rights of Mango, the Israeli distributor and retailer of the
internationally renowned retail brand name MANGO-MNG(TM). Mango operates eight
retail facilities in various cities in Israel.

      Pursuant to the terms of the Share Purchase Agreement ("Mango Agreement"),
Elscint agreed to pay an aggregate amount of E2.85 million in consideration for
these rights, as well as for an option to purchase and operate an additional
store in Israel. Concurrently with the Mango agreement, Mango executed a
distribution agreement with the owners of the MANGO-MNG(TM) brand name for a
10-year period.

      The newly appointed managing director of Mango has been awarded an option
to acquire up to 10% of the equity and voting rights of Mango within 30 days
from the completion of the transaction (the "closing"), and a second option to
acquire up to an additional 10% of the equity and voting rights in the company
exercisable no later than the first anniversary of the closing. Both options may
be exercised in consideration for amounts equivalent to the cost to Elscint, pro
rata. Elscint is currently considering extending the exercise period of the
first option for an additional short term period.

      The key elements of Mango's strategy are to:

      Increase sales to existing and new customers by adjusting our pricing
strategy and market behavior. Mango believes its customer service and
reliability as a franchisee of a leading international brand provide a
competitive advantage;

      As Mango was recently acquired, 2005 is strategically dedicated for
development and strengthening of the Mango brand in Israel;

      Localization and enhancing the Mango brand in Israel by improving our
marketing and branding strategy.

      Open new stores in strategic locations across Israel with emphasis on
opening smaller shops of 250-300 square meters rather that giant stores of 800
square meters which are currently in operation, as well as by reducing the size
of the stores currently in operation.

      Change the percentage of outlet stores to 25% of the total Mango stores in
Israel, and relocate the outlet stores to the suburbs.

REVENUES CLASSIFIED BY BUSINESS SEGMENTS AND BY GEOGRAPHICAL MARKETS

      The following table presents our revenues in each business segment and
geographic market in which Elscint has operated during each of the last three
years:


                                      -25-
<PAGE>
<TABLE>
<CAPTION>
                                   YEAR ENDED
                                  DECEMBER 31,                                         CONVENIENCE
BUSINESS SEGMENT                    Reported                                           TRANSLATION
                                      NIS             YEAR ENDED DECEMBER 31,         FOR YEAR ENDED
                                  (thousands)        Adjusted NIS (thousands)       DECEMBER 31, 2004
                                  -----------        ------------------------       -----------------
                                      2004               2003           2002           $(THOUSANDS)
                                      ----               ----           ----           ------------
<S>                               <C>                <C>              <C>           <C>
Hotels and leisure                  218,365            189,205        206,679             50,688
Commercial Center                    55,263             20,106             --             12,828
Asset Leasing                        13,238             13,495             --              3,073
Long-term contract                       --                 --          1,509                 --
                                    -------            -------        -------            -------
                                    286,866            222,806        208,188             66,589
                                    =======            =======        =======            =======
</TABLE>


<TABLE>
<CAPTION>
                                                                                       CONVENIENCE
                                   YEAR ENDED                                          TRANSLATION
GEOGRAPHICAL                      DECEMBER 31,                                        FOR YEAR ENDED
MARKET                            REPORTED NIS       YEAR ENDED DECEMBER 31,           DECEMBER 31,
                                  (THOUSANDS)        ADJUSTED NIS (THOUSANDS)             2004
                                  -----------        ------------------------             ----
                                      2004            2003             2002           $ (thousands)
                                      ----            ----             ----           -------------
<S>                               <C>                <C>              <C>             <C>
Western Europe                      203,615          181,668          170,326             47,264
Eastern and Central Europe           25,908           19,250           34,725              6,014
Israel                               55,263           20,106            1,509             12,828
Others                                2,080            1,782            1,628                483
                                    -------          -------          -------            -------
                                    286,866          222,806          208,188             66,589
                                    =======          =======          =======            =======
</TABLE>


SEASONALITY

      HOTELS AND LEISURE

      The business activities of the various hotels, especially in Western
Europe, are influenced by several factors that affect the revenues and gross
operating profit ("GOP"). These factors include (i) fluctuations in business
activity in certain seasons (which affects the volume of traffic in the business
community), (ii) holiday seasons (such as Christmas and Easter), and (iii) the
weather conditions. In Western Europe, these factors generally cause the first
and third quarters to be weaker than the second and fourth quarters. Similarly
in England differences in the weather and certain other factors cause the first
and third quarters to be weaker than the second and fourth quarters.

      The first quarter, which is the period immediately following the Christmas
season and the height of the European winter, is traditionally characterized by
lower revenues and GOP resulting from lower occupancy rates and reduced room
rates. During the third quarter, there is generally a decrease in local business
activities due to the summer holidays which, together with a tendency for local
tourist traffic to seek out resort destinations, also generates slower results.
This is offset somewhat by the increase in international tourism but the impact
of this increase is, in turn, offset by lower room rates, particularly for
groups.

      However, second quarter shows a marked increase due to more favorable
weather conditions (spring to early summer) and the Easter holiday and the
corresponding revival of both business and tourist activity, while the fourth
quarter is usually the strongest period in the lead up to the Christmas and New
Year's holiday season and a significant year-end increase in business
activities.

      For our South African hotel, generally the holiday seasons (Christmas and
Easter) show slightly stronger results, although the depressed economy and the
political uncertainty of the region have reduced occupancy rates to the point
that seasonal comparisons are largely irrelevant.

      Nevertheless, examination of recent years revenues and GOP figures shows
different patterns during the year, due to circumstances such as the "Sars"
outbreak and the "Gulf War".

      THE ARENA


                                      -26-
<PAGE>
      The Arena may experience seasonal shifts in retail activity. Generally
peak holiday seasons (such as Passover generally in the second quarter, the
Jewish New Year and other Jewish and national holidays generally in the third
and fourth quarter), will show an increase in patron traffic, both for the
purchase of holiday gifts and for utilizing the entertainment facilities offered
by the Arena. The period immediately following such periods tends to show a
decrease in the number of patrons visiting the Arena and a corresponding
slow-down in retail activity. However, this is partially offset by the fact that
the indoor facilities offer an air-conditioned environment for shoppers and
patrons which is of particular significance during the warm summer months in
Israel (April/May to October/November), and particularly in July and August when
schools are in recess and it is customary in Israel to take summer vacations

      MANGO

      Mango's business is influenced by seasonal shifts in the apparel market.
In the winter season (December - January) and in the summer season (June- July)
the apparel market, including Mango, commences discount sales to the public
which consequently increases Mango's revenues and causes a decrease in the gross
profit margin in the above periods. In addition, Mango's revenues may fluctuate
due to seasonal purchasing by consumers especially in peak holiday seasons such
as Passover generally in the second quarter, the Jewish New Year and other
Jewish and national holidays generally in the third and fourth quarter.

COMPETITION

      HOTELS AND LEISURE

      The lodging industry in Europe has traditionally been classified on a
grading system, with five-star representing a luxury hotel and one-star a budget
hotel. All of our hotels enjoy a four-star grading, or qualify as four-star
establishments, while some are designated as "Four Star Deluxe" establishments.

      Each of our hotels competes with other hotels in its geographic area for
clientele, including hotels associated with franchisers, which may have more
extensive reservation networks than those which may be available to us. We
compete with other facilities on various bases, including room prices, quality,
service, location and amenities customarily offered to the traveling public.
Levels of demand are dependent upon many factors including general and local
economic conditions and changes in levels of tourism and business-related
travel. Our hotels depend upon both business and tourist travelers for revenues.

      Many of these other companies are larger than us. Our hotel in Utrecht,
The Netherlands competes directly with the NH Utrecht (which is located directly
opposite our hotel), the Mercure Hotel and the Carlton President Hotel. The
Victoria Hotel in Amsterdam is located in the city center and is in direct
competition with the Barbizon Palace, Swissotel, Golden Tulip Intell,
Krasnapolsky and the Crowne Plaza. Our Astrid Park Plaza hotel in Antwerp,
Belgium competes directly with the Hilton, Holiday Inn, Crown Plaza and Park
Lane hotels. The Victoria Park Plaza Hotel in London is in direct competition
with a number of three-star plus and four-star rated hotels within relatively
close proximity to the Victoria railway station, including the Thistle Grosvenor
and the Victoria Holiday Inn hotels, both of which benefit from their close
proximity to Victoria station, as well as the Thistle Royal Westminster, Rubens,
Status Street, Jolly St Ermins, St. James's Court and Merchant Court hotels. In
addition, there is a considerable number of traditional budget hotels in the
proximity of the Victoria Hotel. The Sherlock Holmes Hotel in London competes
directly with a number of four-star rated hotels such as Dorst Square Hotel,
Myhotel Bloomsbury, Radisson SAS and the Radisson Edwardian. The New Riverbank
Park Plaza in London is in direct competition with a number of four-star and
five-star rated hotels in relative proximity to the River Thames, including the
City Inn Westminster, Crowne Plaza Hotel, County Hall Marriott, Royal Lancaster
and the Grosvenor House. The hotel we are planning to construct in Budapest,
Hungary will compete directly with the Kempinski, Marriott, Hilton,
Inter-Continental and Hyatt hotels. The Bucuresti Hotel in Bucharest competes
with the Hilton situated directly across the street, the Intercontinental, and
the Marriott Grand Palace hotel. We believe that the average room rate in our
hotel is competitive. In addition, we compete with other companies in the hotel
industry for opportunities to purchase or build new hotels.

      THE ARENA

      There is a large number of shopping malls located in the Greater Tel Aviv
area and in its satellite cities,

                                      -27-
<PAGE>
including Herzlia, Ra'anana and Ramat Aviv. The Arena's main competitors are a
shopping mall located in Herzlia and another, located in northern Tel-Aviv
approximately 8 kilometers from the site. All these malls compete vigorously for
tenants and customers. Elscint is attempting to establish a competitive edge,
both due to: (a) the unique location of the Marina, overlooking the
Mediterranean Sea; and (b) the strong emphasis on the entertainment facilities
offered to its patrons.

      MANGO

      Mango operates in a competitive market which is characterized by a large
and increasing number of international and local brand stores and independent
stores. Mango's direct competitors include brand stores such as Zara, Castro,
Honigman, Renuar and Dan Casidi which are located in the vast majority of the
shopping centers in Israel. Increased competition could result in pricing
pressure or loss of market share and adversely affect Mango's revenues and
profitability. Mango's competition strategy includes: attempting to be a fashion
trend leader, investment in branding, maintaining a compatible pricing strategy
and maintaining leadership of fashion trends.

      BIOTECHNOLOGY INVESTMENTS

      Start up companies, including companies in the biotechnology field, tend
to operate in a highly competitive environment. In order to succeed, the
products or services require a unique "added value" factor, relatively brief
concept to market parameters, and aggressive marketing. Gamida faces competition
from large international companies with access to financial resources and with
well-established research and development capabilities. However, the
biotechnology field, which is dominated by large multi-national conglomerates,
although affected by global pressures on the investment market, is more
resilient to market trends than the more volatile high technology industry.

GOVERNMENT REGULATION

      HOTELS AND LEISURE

      The Netherlands

      In the Netherlands, there are a number of commercial organizations
regulating the hotel and restaurant industry, which govern methods of engaging
in agreements, advertising tariffs and advertising the hotel. These regulations
also govern the sale of alcohol to the public, terms of employing personnel,
methods of registering the hotel and creating a method of rating the hotels in
the Benelux countries (Belgium, the Netherlands and Luxembourg).

      In the Benelux countries, there is a "Benelux-Hotelclassificatie", which
is the Benelux hotel classification system. In the Netherlands this
classification system is conducted by the "Bedrijfschap Horeca en Catering", a
trade organization established by law in collaboration with the consumer society
ANWB (which is a consumer society comparable to the AAA in the United States of
America). Our hotels in the Netherlands have received a four-star rating.
Restaurants and hotels operating in the Netherlands must operate under the
management of a general manager and a local manager.

      According to Dutch law, when a company sells its business, it is obligated
to transfer all employees together with the business. The hotel and restaurant
industry in the Netherlands has a collective labor agreement, which provides a
grading system for employees in the hotel and restaurant industry. For each
grade there is a minimum wage mandated. Among other things, the provisions of
the collective labor agreement obligate the employer to provide money for
employees for a number of funds.

      The total obligations of the companies in the Netherlands that arise from
the termination of employees, in accordance with the laws in the Netherlands and
labor agreements in effect, are covered by (i) current payments to government
institutions for provisions for the retirement of employees or their dismissal;
(ii) current payments to life insurance companies for pensions; and (iii) a
provision included in their financial reporting.

      Belgium


                                      -28-
<PAGE>
      In Belgium, the grading of hotels is conducted by a tourism organization
which operates under the authority of, and in accordance with regulations issued
by, the Belgian Ministry of Tourism. Hotels which are not graded are prohibited
from operating as a hotel. This organization regulates and grades hotels and
restaurants including supervising the method of engaging in agreements and
advertising tariffs and the hotel. The regulations also establish the rating of
hotels using the "stars" method. Since April 30, 2002, the Astrid Park Plaza
hotel has received an official H-4 rating, which is equivalent to a "Four Star
Deluxe" rating.

      In addition, various licenses and permits are required to be issued by
governmental authorities (including permits for the operation of a restaurant,
the sale of alcohol and food and beverage licenses, etc.) and in some instances
by the municipal authorities (including illumination, operation of a public
terrace during summer months, etc.). Governmental authorities conduct periodic
reviews of installations and systems operating within the hotel (elevators,
sprinkler systems, sanitation, etc.). Regulations govern the employment of
employees, the observance of which is monitored by the employee union and
regulated by governmental authorities.

      United Kingdom

      The principal regulatory requirements for the construction and operation
of hotels in the United Kingdom are as follows:

      Approval of the appropriate building control authorities for the plans and
      designs of the proposed hotel, culminating in the grant of a valid
      building permit;

      Building regulation consents required for the occupation and operation of
      the building, particularly in connection with means of escape in the case
      of fire;

      Licenses for sale of alcohol;

      Compliance with various United Kingdom and European Union regulations in
      connection with employees, in particular working hours regulations;

      Compliance with health and safety regulations, in particular those
      concerning food and hygiene; and

      Gaming licenses (if applicable).

      The type and nature of the licenses will vary according to circumstances.
In particular, there are a number of different licenses that may be relevant in
connection with the sale of alcohol and operation of entertainment facilities,
depending on the nature of the services to be provided by the hotel to its
patrons.

      Hungary

      The fact that the Ballet Institute Building has a historical landmark
status, under the protection of the Hungarian Historical Building Office (which
has authority for the administration and preservation of the building), mandates
that the planning consents and requisite permits for the proposed renovation of
the Ballet Institute Building and its conversion into a hotel must be applied
for and obtained from the Historical Building Office. In order to obtain such
consents and permits, it is necessary to ensure that the renovation plans
provide for the restoration of the building and the preservation of its
historical status.

      Various government decrees establish the criteria for the rating of hotel
establishments. These criteria include: size of rooms; suite-to-room ratio;
number of restaurants and other catering facilities; level of room service
provided; level of room amenities provided; air-conditioning; guest facilities;
and the quality and periods of food and beverage services provided.

      Following the completion of the renovation, it will also be necessary to
obtain an operating permit, which will only be issued after the following
consents and approvals have been obtained:

         -  The approval of the local State Public Health and Medical Officer
            Service for the commercial accommodation;


                                      -29-
<PAGE>

            -     Animal Health Station and the local State Public Health and
                  Medical Officer Service for businesses or catering
                  establishments which use or market food or ingredients of
                  animal origin;

            -     The Fire Department Control Authority for business
                  establishments, commercial accommodations and hospitality
                  establishments; and

            -     The competent building authority (in Elscint's case, the
                  Historical Building Office) certifying that the developer has
                  executed the renovation and construction in compliance with
                  the permits issued to it.

         The operating permit is issued for the hotel as a business activity.
Other activities conducted within the premises (such as restaurants, bars,
shops, health clubs, etc.) require special operating permits, which are issued
by the local municipal authorities. The sale of alcohol on the premises requires
a permit from the customs authorities.

         South Africa

         The Sandton Hotel is required to maintain, and currently maintains,
licenses for the sale of alcohol on the premises and trading license. The Hotel
must also comply with national and municipal regulations regarding food, hygiene
and employees.

         Romania

         Building permits required under local applicable laws will be necessary
in order to execute the renovation at the Bucuresti Hotel. In order to enable
the re-opening of the hotel following renovation, the Bucuresti Hotel will be
required to maintain licenses for the operation of the building as a hotel, the
sale of alcohol on the premises and the operation of a restaurant and tourism
services. In addition, the hotel will be required to maintain a trading license,
and to comply with national and municipal regulations regarding food, hygiene,
the operation and maintenance of the swimming pool, casino, elevators, health,
sanitation, electricity, fire hazards prevention, and employees. The hotel will
also be required to obtain local municipal and police approvals for the means of
access to and egress from the hotel for motor vehicles.

         ARENA AND MANGO

         Israel

         The Arena and its management company are required under local law to
maintain various licenses and permits issued by governmental authorities and in
some instances by the municipal authorities (including maintaining a valid
building permit, building regulation consents required for the occupation and
operation of the building, particularly in connection with means of escape in
the case of fire and sprinkler permits). Governmental authorities conduct
periodic reviews of installations and systems operating within the Arena such as
the elevators and sprinkler systems. Regulations govern the employment of
employees, the observance of which is regulated by governmental authorities

         The principal regulatory requirements for the operation of Mango
include: (i) compliance with the Israeli consumer protection law, (ii)
maintaining various licenses and permits issued by governmental authorities
(including receiving applicable standards from the Israeli consumer standard
institute for certain imported accessories), and (iii) compliance with
employment regulations.

C.       ORGANIZATIONAL STRUCTURE

         Elscint is a member of the Europe-Israel (M.M.S.) Ltd.
("Europe-Israel"), an Israeli private company. (See "Item 7 - Major Shareholders
and Related Party Transactions"). Europe Israel is a wholly-owned subsidiary of
Control Centers Ltd., a privately-held Israeli company ("Control Centers").

         The following table sets forth information about Elscint's significant
subsidiaries, jointly controlled subsidiaries and associated company:


                                      -30-
<PAGE>
<TABLE>
<CAPTION>
                                                 ABBREVIATED        COUNTRY OF           ELSCINT'S DIRECT/INDIRECT
NAME OF COMPANY                                     NAME           ORGANIZATION            OWNERSHIP (PERCENTAGE)
-----------------------------------------       -------------     --------------         -------------------------
<S>                                             <C>               <C>                    <C>                <C>
                                                                                           EQUITY           VOTING
Elscint Holdings and Investment N.V.            ("E.H.")          Netherlands              100.0             100.0
BEA Hotels N.V.                                 ("BEA")           Netherlands              100.0             100.0
BEA Hotels Eastern Europe B.V.                  ("BHEE")          Netherlands              100.0             100.0
Riverbank Hotel Holding B.V                     ("RBH")           Netherlands               45.0              50.0
Shaw Hotel Holding B.V.                         ("SHH")           Netherlands               30.0*             35.0
Victoria London Hotel Holding B.V.              ("VLH")           Netherlands               50.0              50.0
Victoria Park Plaza Operator Ltd.               ("VPPO")          United Kingdom            50.0              50.0
Andrassy 25 Kft                                 ("Andrassy")      Hungary                   50.0              50.0
Park Plaza Hotel Sandton (Pty) Ltd.             ("Sandton")       South Africa              33.3              33.3
Victoria Hotel C.V. - Limited Partnership       ("VHCV")          Netherlands               50.0              50.0
Grandis Netherlands Holding B.V.                ("Grandis")       Netherlands               45.0              50.0
Sherlock Holmes Park Plaza Ltd.                 ("SHPP")          United Kingdom            45.0              50.0
Astridplaza N.V.                                ("AP")            Belgium                  100.0             100.0
Utrecht Victoria Hotel B.V.                     ("UVH")           Netherlands               50.0              50.0
S.C. Domino International Hotels S.R.L.         ("Domino")        Romania                  100.0             100.0
S.C. Bucuresti Turism S.A.                      ("Bucuresti")     Romania                   70.0              70.0
S.L.S. Sails Ltd.                               ("SLS")           Israel                   100.0             100.0
Elscint Biomedical Ltd.                         ("EBM")           Israel                   100.0             100.0
Gamida Cell Ltd. (associated company)           ("Gamida")        Israel                    33.3              33.3
Mango Israel Clothing & Footwear Ltd.           ("Mango")         Israel                   100.0             100.0
</TABLE>


(*) Thirty-five percent (35%) of the share capital of SHH (the company holding
    the ownership interest in the Shaw Hotel in London) is held by BEA, with
    another 35% being held by the Red Sea Hotels Group ("RSG"), and the balance
    (30%) held by another corporation (the "Shareholders"). The Shareholders and
    the companies controlled by them are bound by an agreement with terms and
    conditions related to the holdings of the SHH shares (including voting
    rights and rights to appoint directors). Park Plaza, BEA and RSG, agreed to
    be bound by a formula under which Park Plaza is entitled to receive 10% of
    "free funds for distribution" in excess of 10% of all shareholders'
    investments (10% of shareholders loans (principal) with the addition of 8%
    annual interest accrued thereon). Park Plaza will also be entitled to all
    economic and other rights and benefits ("beneficial rights") pertaining to
    10% of the rights deriving from all issued and outstanding shares of SHH,
    which are to be jointly held on its behalf by BEA and RSG. The legal rights
    attached to the shares as well as voting rights therein will be retained by
    the registered shareholders. The effective shareholding of BEA in SHH
    amounts therefore to 30%. Park Plaza is entitled at any time to request the
    conversion of its beneficial rights into shares with identical rights to
    those held by the registered shareholders, subject to the investment of its
    proportionate share in SHH, the consent of all shareholders of SHH and that
    of the Hotel's financing banks.

         D. PROPERTY, PLANT AND EQUIPMENT

         PROPERTY IN ISRAEL

         Elscint uses leased office spaces in Tel Aviv (approximately 458 square
meters) for its management and administration activities which will expire in
mid 2005. A part of the leased space in Tel Aviv is leased from Control Centers
at market prices.

         In June 2003, our subsidiary that acquired the rights to the Arena, was
registered as the owner of the long term lease rights to land owned by the
Israeli Land Administration. The capitalized lease rights in respect of the
Arena are for a period of 49 years with an option for an additional 49 years.
The option period will expire in 2086, subject to the lessee's compliance with
the terms of the lease. The Arena itself has a total gross constructed area
(excluding underground parking facilities) of approximately 60,000 square
meters, of which approximately 26,500 square meters is available for rent, and
approximately 33,500 square meters for public areas. In addition, a large
underground parking facility of 60,000 square meters, which accommodates
approximately 1,500 vehicles, serves the Arena. There is a first priority
mortgage on the land and the commercial center, a first priority lien on shares
of our subsidiary that owns the rights to the land and a fixed and floating
charge to its assets, a fixed and floating charge on all revenues and profits
derived from the Arena.


                                      -31-
<PAGE>
          In September 2000, Elscint won a tender for the acquisition of
long-term lease rights to approximately 22 acres, situated on the bank of the
artificial Lake Monfort near Ma'alot in Northern Israel. As a result of the
economic situation and in view of the state of the tourist branch in particular,
implementation of the project has been delayed.

         Mango currently leases five stores: in Tel Aviv (Azrieli shopping
center), Kfar-Saba, the Kraiot (Kyrion shopping center), Haifa (Grand Canyon
shopping center) and Petah-Tikva) and an additional three outlet stores in
Haifa, Natanya and Beer-Sheva. Mango also leases office space in Tel Aviv
(approximately 250 square meters) from Europe Israel at market prices for its
management and administration activities. The total selling area of Mango's
stores is approximately 4,000 square meters.

         PROPERTY IN EUROPE AND SOUTH AFRICA

         Set forth below is certain information with respect to our hotels and
hotel projects in Europe and South Africa:

<TABLE>
<CAPTION>
                                    TOTAL
                              CONSTRUCTED AREA
       NAME OF HOTEL              (SQ. FT.)                     ENCUMBRANCES, MISCELLANEOUS
       -------------              ---------                     ---------------------------

<S>                           <C>               <C>
Victoria Hotel                     220,000      - land pledged as collateral to secure payment of loan
(Amsterdam)                                     - first priority mortgage and first priority lien on all
                                                  moveable assets

Utrecht Park Plaza                 55,880       - leasehold rights capitalized for a 50 year period until 2036.
                                                - The municipality has the right to terminate the leasehold
                                                  rights should it determine that the land is required for
                                                  public use or in the event a court determines that the lessee
                                                  failed to fulfill its undertakings under the terms of the lease
                                                - long term lease rights pledged as collateral to secure
                                                  payment of loan
                                                - first priority lien on all moveable assets

Astrid Park Plaza                  223,300      - first ranking pledge on shares of subsidiary that owns
                                                  the rights to the land (Astridplaza N.V.)

Sandton Park Plaza Hotel           89,100       - first priority mortgage on land
                                                - lien on all moveable assets and on $500,000 bank deposit

Sherlock Holmes Hotel              67,460       - sub-lease for 99 years, since 1996, and an option to extend
                                                  to a total of 125 years (we are sub-lessee). The company
                                                  holding the property has an option to terminate the lease in
                                                  2059 with an advance notice of 2.5 years
                                                - lien on the sub-lease rights

Victoria Park Plaza,               242,000      - first priority mortgage on land
(London)                                        - first ranking pledge on shares of subsidiary that owns
                                                  the rights to the land
                                                - lien on all moveable assets

Property located on Euston         226,910      - first priority mortgage on land and on moveable assets
Road, London (formerly                          - first priority mortgage on revenues and profits derived
known as Bernard Shaw hotel)                      from the long-term lease agreements
                                                - first ranking pledge on shares of subsidiary that owns
                                                  the rights to the land
                                                - the hotel is leased for a period of 25 years, since 2003,
                                                  with an option for two additional periods of 15 years each
</TABLE>


                                      -32-
<PAGE>
<TABLE>
<S>                           <C>               <C>
Riverbank Park Plaza               337,100      - leasehold rights for 125 years. Should the lessee breach any
Hotel                                             of its undertakings under the lease agreement, the lessor
                                                  would have a right of forfeiture of the property, all as
                                                  stipulated in the lease agreement
                                                - first priority mortgage on the lease rights
                                                - first ranking pledge on shares of subsidiary that owns
                                                  the rights to the land
                                                - lien on all moveable assets

Ballet Building (Budapest)         143,000      - none

Bucuresti Hotel Complex            910,000      - lien on shares of the subsidiary that own the complex
including Centrevile
apartment hotel,
</TABLE>


         ITEM 5. -- OPERATING AND FINANCIAL REVIEW AND PROSPECTS

GENERAL

The following discussion should be read in conjunction with our consolidated
financial statements included in Item 18 and the accompanying Notes thereto
("consolidated financial statements").

         A "critical accounting policy", is one that (i) is important to the
portrayal of an entity's financial condition and results of operations and (ii)
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain. We believe that our critical accounting policies,
estimates and assumptions, the impact of which is material to our financial
condition or operating performance, or the nature of which is material because
of the level of subjectivity and judgment necessary for highly uncertain
matters, are those described below.

         The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in Israel ("Israeli GAAP"),
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. We evaluate, on an on-going basis, our estimates,
including, but not limited to, those related to impairment of real estate assets
and investments, allocation of the consideration within a business combination,
assessment of the probable outcome of litigation matters in which we are
involved and other contingent liabilities, allowance for doubtful debts,
determination of subsidiaries' functional currency, current and deferred taxes.
We base our estimates on past experience, on professional advice or on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments as to the carrying
values of assets and liabilities that are not readily apparent from other
sources. In preparing the consolidated financial statements and forming our
estimates and judgments with respect to certain amounts included therein, we
have utilized available information including, among other factors, our past
history as above mentioned, industry standards and the current economic
environment, while giving due consideration to materiality. It is possible that
the ultimate outcome, as anticipated by us in formulating our estimates inherent
in these consolidated financial statements, will either not materialize or prove
to be substantially different. Moreover, application of the critical accounting
policies described below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, the actual outcome
could differ from these estimates. Other companies may use different estimates,
which may have an impact on the comparability of our results of operations to
those of companies in similar businesses.

         For information as to material differences between Israeli GAAP and
U.S. GAAP as applicable to us, see Note 24 to our consolidated financial
statements.

         Issues regarding our consolidated financial statements, that (i) in
accordance with Israeli GAAP, are subject to considerable judgment; and that
(ii) involve critical assumption and estimates, are in general similar to those
under U.S. GAAP.


                                      -33-
<PAGE>
IMPAIRMENT AND DEPRECIATION OF REAL ESTATE PROPERTIES, DEVELOPMENT ASSETS

         We evaluate the existence of any other-than-temporary decline, and
hence, the need for an impairment loss on our real estate assets (operating or
under construction), when indicators of impairment are present. Our evaluation
is based, as from January 1, 2003, on the higher of (i) our estimated selling
price in the open market or (ii) the estimated value-in-use, based on discounted
operational cash flows (before interest and income tax charges), expected to be
generated by those assets ("cash flows"; and collectively - "recoverable
amounts"). Through December 31, 2002, the valuation was based on estimated
undiscounted operational cash flows or on our estimated selling price, whichever
is higher. The impairment loss is recorded to the extent that the carrying
amount of each asset exceeds its recoverable amount.

         Fair value estimates represent the best estimates based on industry
trends, market rates, prices and transactions. Our value-in-use estimation
involves estimating the future cash flows expected to be derived from continuing
use of the assets and from their ultimate disposal. Such value is based on
reasonable and supportable assumptions as well as on historical results adjusted
to reflect our best estimate of future market and economic conditions that we
believe will exist during the remaining useful life of the assets. The discount
rate used in measuring the value-in-use, reflects economic environment risks,
current market assessments regarding the time value of money, industry risks as
a whole and risks specific to the assets, and is the return that investors would
require if they were to choose an investment that would generate cash flows of
amounts, timing and risk profile equivalent to those that the enterprise expects
to derive from the assets. Such rate is generally estimated from the rate
implied in current market transactions for similar assets. When an
asset-specific-rate is not directly available in the market, we use a substitute
rate to estimate the discount rate, by evaluating, as much as possible, a market
assessment of: (a) the time value of money for the periods through the end of
the assets' useful life; and (b) the possible risk that future cash flows will
differ in amount or timing from estimates.

         Based on our estimates of future cash flows, our real estate assets
were determined to be recoverable, with the exception of the provisions for
impairment made by us in previous and current years. As for the current and
accumulated provisions for impairment loss - see Notes 9 and 18I. to our
consolidated financial statements.

         The recognition of an impairment to property and the potential
impairment calculation are subject to a considerable degree of judgment, the
results of which, when applied under different principles or different
conditions or assumptions, are likely to result in materially different amounts
and could have a material adverse impact on our consolidated financial
statements. The evaluation of future cash flows expected to be generated by each
property is subject to significant uncertainty in the estimation of future
income and expenses of each of our real estate assets, and the future capital
expenditures. In preparing these projections, we make a number of assumptions
concerning market share of the asset, benchmark operating figures such as
occupancy rates, average room rate (in respect of hotels), rental and management
fees rates (in respect of the commercial and entertainment center), collection
rates, market prospects, industry labor cost prospects, operating efficiency of
the management companies and the scope of maintenance and other operating
expenses.

         Depreciation of real estate is based on the estimated useful life of
the property (50 years, in respect of commercial and entertainment center and 67
or 95 years, as the case may be, in respect of hotels), using the straight-line
method. Changes in our estimates regarding the expected economic useful life of
our assets, might significantly affect our depreciation expenses.

         Under different assumptions or conditions, the asset impairment
analysis or the depreciation rates may yield a different outcome, which may
alter the impairment analysis on our assets, as well as the gain or loss on the
eventual disposition of the assets.

         For information on the material differences between Israeli GAAP and US
GAAP relating to impairment of real estate assets and/or investments in investee
companies - see subsections A7. and A8. to Note 24 to our consolidated financial
statements. In accordance with U.S GAAP, we should also use critical estimates
by determining the useful life of each group of assets. An indication that an
asset may be impaired may sometimes indicate that the remaining useful life, the
depreciation rates or the residual value for the asset, needs to be reviewed and
adjusted under accounting standards applicable to the asset, even if no
impairment loss is to be recognized for the asset and vice versa.


                                      -34-
<PAGE>
BUSINESS COMBINATIONS

We allocate the purchase price of acquired companies and properties to the
tangible and intangible assets acquired and liabilities assumed, based on their
estimated fair values. In order to allocate the purchase price attributed to
each acquired company and/or asset (tangible and intangible; monetary and
non-monetary) and liabilities, we identify and estimate the fair value of each
of the main acquired tangible assets (land, building, improvement, other
equipment and other monetary and non-monetary items) and estimate any other
identifiable intangible assets. Such valuations require us to make significant
estimates and assumptions. We believe that our estimates used as the basis for
this allocation are reasonable under the circumstances. A different method of
allocation may cause (i) an increase or decrease (as the case may be) in our
depreciation costs; (ii) the need to provide an impairment loss for each of the
acquired companies' assets, or to amend it; and (iii) an increase or decrease
(as the case may be) in gain (loss) derived from the disposal of these assets.

LITIGATION, OTHER CONTINGENT LIABILITIES AND ALLOWANCE FOR DOUBTFUL DEBTS

a.       We are currently involved in various litigation disputes in substantial
         amounts. We make provision for contingent obligations (including those
         in respect of discontinuing operation) when the obligations are
         probable and their amounts can reasonably be estimated. We include in
         our consolidated financial statements provisions which are based on,
         among other factors, legal consultation and past experience, and which
         in our opinion are deemed adequate to cover the costs and resources
         necessary to satisfy the potential liabilities under these claims. The
         outcome of such contingent liabilities may differ materially from our
         assessment. We periodically evaluate these assessments and make
         appropriate adjustments to our consolidated financial statements. In
         addition, as facts concerning contingencies become known, we reassess
         our position and make appropriate adjustments to our consolidated
         financial statements.

         We are involved in litigation matters, the amount or outcome of which
         may not be estimable (e.g., class actions). Due to the uncertainties
         related to the possible outcome and/or the amounts and/or ranges of
         losses in these litigation matters, neither our management nor our
         legal advisors are able to make a reasonable estimate of the liability
         that could result from an unfavorable outcome and accordingly no
         provision is provided for such claims in our consolidated financial
         statements. As additional information becomes available, we will
         re-assess the potential liability related to our pending litigation and
         will revise our estimates accordingly. Such revisions in our estimates
         of the potential liability could materially impact our results of
         operations and financial position. See also Note 16B. and 16C. to our
         consolidated financial statements.

b.       We examine, on an ongoing basis, the volume of credit extended to our
         customers in the ordinary course of business (including long term loans
         to third parties, in line with and regarding our business) and
         accordingly, record a provision for doubtful debts based on those
         factors affecting credit risks, based upon our best judgment. We
         periodically evaluate the quality and value of loans granted by us to
         various third parties in the ordinary course of business, taking into
         consideration the security which was provided, the term of the loans
         and our past experience with these third parties. If our estimate of
         collectibility differs from the cash received, the timing and amount of
         our reported results of operations could be adversely affected.

FUNCTIONAL CURRENCY OF INVESTEE COMPANIES

         In preparing our consolidated financial statements, we are required to
evaluate the functional currency of certain subsidiaries operating outside of
Israel (especially in Central Europe). In principle, the functional currency is
the currency which management believes, based on qualitative criteria, reflects
the economic nature of the events and circumstances relevant to the operating
subsidliary ("investee") or currency that is extensively used in or has a
significant effect on its activity. The functional currency is determined based
on management's judgment and involves consideration of all relevant economic
factors and circumstances affecting each subsidiary (e.g., the currency of the
financial environment that significantly influences management in determining,
inter alia, selling prices and payment conditions, or the currency used by
management for the purpose of decision making). Generally, the currency in which
each subsidiary executed (denominated and settled) the majority of its financing
and transactions, which include purchases, billings, collections and payments
(i.e., currency in which receivables and payments from current activity are
denominated and settled or in which they are retained following their
conversion) and the currency in which a majority of costs pertaining to the
supply of services (e.g. payroll, maintenance and


                                      -35-
<PAGE>
other expenditures) are denominated and settled, may indicate the functional
currency. In these instances, the nature of the subsidiary's operations must
also be considered. A significant change in the financial environment, or in the
foregoing factors in whole or in part, may require management to re-assess its
determination of the functional currency (see also Note 2A.(3)(ii) to our
consolidated financial statements).

         When any subsidiary's functional currency is deemed to be other than
the reporting currency, then any gain or loss associated with the translation of
that subsidiary's financial statements, for consolidation purposes, is charged
directly to a separate item in the shareholders' equity, namely "cumulative
foreign currency translation adjustments". Exchange rate differences on net
monetary items included in the subsidiary's financial statements which are
denominated in, or linked to, currencies other than the functional currency, are
recorded directly to the statements of operations. See also "Item 11 -
Quantitative and Qualitative Disclosure About Market Risks - Exchange Rate
Exposure" and " Exposure to Net Investment Value of Foreign Entity".

         In the event the functional currency changes into a currency other than
the local one, the amount of the foreign currency translation adjustment and/or
the net income in each reported year following the date the change was
implemented could be materially affected. For information on currencies involved
in our global operations, see "Item 11 - Quantitative and Qualitative disclosure
about market risks - Table I - foreign currency risks".

ACCOUNTING FOR INCOME TAXES

         As part of the preparation of our consolidated financial statements, we
are required to estimate our income taxes in each of the jurisdictions in which
we operate. This process involves an estimate by us of our actual current tax
exposure, together with assessing temporary differences resulting from different
treatment of items, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities that are included in our balance sheet.
Considerable management judgment is required in determining our provision for
income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We evaluate the weight
of all available evidence to determine whether it is probable that some portion
or all of the deferred income tax assets could be realized. As of December 31,
2004 we recorded a valuation allowance for substantially all of our deferred tax
assets (net, after provisions) primarily consisting of certain net operating
losses, as well as other temporary differences between book and tax accounting,
(see Note 15F. to our consolidated financial statements). The valuation
allowance was recorded due to uncertainties surrounding our ability to utilize
some or all of our deferred tax assets. In assessing the need for the valuation
allowance, we consider future taxable income, the time limitations on the
utilization of losses (see Note 15D. to our consolidated financial statements),
and ongoing, prudent and feasible tax planning strategies. In addition, the
calculation of our tax liabilities involves dealing with uncertainties in the
application and/or interpretation of complex tax laws, tax regulations, and tax
treaties in respect of various jurisdiction in which we operate and which
frequently vary. Tax authorities may interpret certain tax issues in a manner
other than that which we have adopted. Should such contrary interpretive
principles be adopted upon adjudication of such cases, our tax burden of the
group may be significantly increased. If the realization of deferred tax assets
in the future is considered probable, an adjustment to the deferred tax assets
would increase net income during the period in respect of which such
determination is made. In the event that actual results differ from these
estimates or that we adjust these estimates in future periods, we may incur
additional taxes, which could materially affect our financial position and
results of operations. We have recorded liabilities for anticipated tax issues
based on our estimate of whether, and the extent to which, we may become subject
to additional tax payments. If we ultimately determine that payment of these
amounts is unnecessary, we will reverse the liability and recognized a tax
benefit during the period of the determination. We record an additional charge
in our provision for tax in the period in which we determine that the tax
liability recorded in our books is less than we anticipate the ultimate
assessment to be. As to tax issues affecting our U.S. subsidiary - see Note
15B.(2) to our consolidated financial statements.

         The computation of current and deferred tax liabilities does not
include taxes that would have arisen in the event of a sale of the investments
in investees (except those that are to be liquidated), or upon receiving the
retained earnings as dividends, since in respect of some dividends from profits
thereof and/or gains to be generated from their realization are tax exempt, and
in respect of others, it is management's policy not to dispose of such
investments and/or not to offer, in the foreseeable future, their retained
earnings as a dividend distribution or otherwise, in a manner causing a material
tax burden on us (see Note 15B.(1)c. to our consolidated financial statements).
In assessing the need to provide a tax liability in respect of the
abovementioned, we consider, among others, feasible tax planning strategies.
Different assumptions or other policies adopted by management, might
significantly affect our tax expenses.


                                      -36-
<PAGE>
         As stated in Note 15G. to our consolidated financial statements, final
tax assessments have been received, in respect of the Company and some of our
subsidiaries, from 1997 to 2002, while some have not yet been assessed since
incorporation. See, in addition, Note 16C.(4) to our consolidated financial
statements. Tax authorities may, at this stage, challenge our tax strategy, and
thus our income or loss for tax purposes could be significantly affected, so
that our tax expenses (current and deferred) may, therefore, increase or our
recorded valuation allowance may decrease, significantly. Furthermore, our tax
strategy might be impacted by new laws or rulings.

RECENTLY ISSUED ACCOUNTING STANDARDS

For information on recently issued accounting standards under US GAAP - see Note
24 A. to our consolidated financial statements.

For information on recently issued accounting standards under Israeli GAAP - see
Note 2 U. to our consolidated financial statements.

         A. OPERATING RESULTS

         The following table presents for the periods indicated the ratio of
certain statements of operation items to total revenues:

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                                 -----------------------
                                                                         2004               2003              2002
                                                                         ----               ----              ----
                                                                          %                   %                 %
<S>                                                                      <C>                <C>               <C>
TOTAL REVENUES

Hotels operation and management                                           76.1               84.9              99.3
Commercial center operations                                              19.3                9.0               -
Asset leasing                                                              4.6                6.1               -
Long term contracts                                                        -                  -                 0.7
                                                                         -----              -----             -----
                                                                         100.0              100.0             100.0
COST OF REVENUES

Hotels operation and management                                           48.0               57.5              64.0
Commercial center operations                                              20.9                9.9               -
Asset leasing                                                              1.1                1.6               -
Long term contracts                                                        -                  -                 0.7
                                                                         -----              -----             -----
                                                                          70.0               69.0              64.7

GROSS PROFIT                                                              30.0               31.0              35.3

Hotels' depreciation, amortization and operating expenses                 22.5               22.7              29.5
Initiation expenses                                                        0.6                1.9               0.8
Selling and marketing expenses                                             4.9                4.0               -
General and administrative expenses                                        9.5               13.2              15.1
                                                                         -----              -----             -----
OPERATING LOSS BEFORE FINANCE INCOME (EXPENSES), NET                      (7.5)             (10.8)            (10.1)

Finance income (expenses), net                                           (12.2)             (18.5)              6.1

                                                                         -----              -----             -----
OPERATING LOSS AFTER FINANCE INCOME (EXPENSES), NET                      (19.7)             (29.3)             (4.0)
Other expenses, net                                                       (3.3)              (7.3)            (10.3)
                                                                         -----              -----             -----
LOSS BEFORE INCOME TAXES                                                 (23.0)             (36.6)            (14.3)
Tax benefits                                                              (0.2)              (3.8)             (2.5)
                                                                         -----              -----             -----
LOSS AFTER INCOME TAXES                                                  (22.8)             (32.8)            (11.8)
Share in loss of an associated company                                    (2.3)              (3.1)             (1.4)
Minority interest in loss (profit) of a subsidiary                        (0.3)               0.3               0.4
                                                                         -----              -----             -----
LOSS FROM CONTINUING OPERATIONS                                          (25.4)             (35.6)            (12.8)
Net profit from discontinuing operation                                    3.9                5.8              42.7
NET PROFIT (LOSS)                                                        (21.5)             (29.8)             29.9
                                                                         =====              =====              ====
</TABLE>


                                      -37-
<PAGE>

         SUMMARY OF FISCAL 2004 OPERATIONS

         In the year ended December 31, 2004, the following activities have
significantly influenced our operations:

         -        Our hotels and leisure segment operational results improved,
                  mainly as a result of increased occupancy rate in the Victoria
                  London hotel and commencement of operations in the Centreville
                  apartment hotel of additional renovated apartments during the
                  year, higher occupancy rates, and higher rental rates.

         -        The Aquatopia attraction within the Astrid Park Plaza facility
                  operated during the entire year ended December 31, 2004 as
                  opposed to operating for four months for the year ended
                  December 31, 2003.

         -        The Arena operated during the entire year ended December 31,
                  2004 as opposed to partial operating on a partial basis since
                  June 2003 for the year ended December 31, 2003.

         -        Most of the Arena attractions commenced operations in April
                  2004.

         FISCAL 2004 COMPARED TO FISCAL 2003

         The following discussion and analysis should be read in connection with
our consolidated financial statements and the notes thereto included in Item 18
and the other financial information included elsewhere in this report.

     Revenue from our hotels and leisure segment

         The revenues from our hotels and leisure segment are derived from room
rentals, food and beverage sales, rental of commercial area and other services.
Our results of operations are significantly influenced by occupancy and room
rates at our hotels, and the ability to manage our costs. Future operating
results could be adversely impacted by many factors including those discussed in
the "Risk Factors" included in Item 3 in this report. As of December 31, 2004,
our hotel segment included seven operating hotels (including an apartment hotel)
with more than 862 rooms and/or apartments (which represents the number of rooms
Elscint owns based on our pro-rata ownership of each hotel) and three hotels
under various stages of construction or renovation. The revenues from our hotels
and leisure segment for the year ended December 31, 2004 were NIS 218.4 million
($ 50.7 million) as compared to NIS 189.2 million for the year ended December
31, 2003, an increase of NIS 29.2 million or 15.4%.

         Our hotels, which operate in various countries, report their operating
results in currencies other than the NIS ("functional currency"), which is
generally the currency of their country of residence. We translate our
subsidiaries' results of operations into our reporting currency (which is the
NIS) based on the exchange rate on the transaction date, or for sake of
practicality, using the average exchange rate for the reported period. Through
December 31, 2003 we used the representative exchange rate as of the year end
for such translation). See also our discussion in "Critical Accounting Policies
and Estimates", above. Therefore, a devaluation of the NIS against each
functional currency will cause an increase in our revenues in reported NIS and a
revaluation of the NIS against each functional currency will cause a decrease in
our revenues in reported NIS. We believe that an analysis of our hotels and
leisure segment should, therefore, be presented in the functional currency of
each of our operating hotels. The following table summarizes our hotels and
leisure segment revenues in their functional currency and in reported NIS:

<TABLE>
<CAPTION>
     FUNCTIONAL             REVENUES IN FUNCTIONAL CURRENCY                REVENUES IN REPORTED NIS (THOUSANDS)
     CURRENCY
                              2004           2003          CHANGE           2004           2003         CHANGE
                                                             (%)                                         (%)(*)
                                                             ---                                         ------
<S>                         <C>           <C>              <C>            <C>            <C>           <C>
     Euro (thousands)        21,444         19,442          10.3%         119,218        107,574         10.8%
</TABLE>

                                      -38-
<PAGE>
<TABLE>
<S>                         <C>            <C>              <C>           <C>            <C>           <C>
     GBP (thousands)          8,655          7,724          12.0%          70,928         60,597         17.0%
     Romanian Lei
     (millions)             189,053        143,066          32.1%          26,225         19,252         36.2%
     S.A Rand
     (thousands)              2,832          2,682          5.6%            1,994          1,782          11.9%
     TOTAL                                                                218,365        189,205       (15.4%)
</TABLE>

(*)      This change reflects the real change in revenues (in functional
         currency) plus the devaluation of the NIS against each functional
         currency.

         Revenues from our hotels in The Netherlands and Belgium have increased
by 10.3% for the year ended December 31, 2004, (in reported NIS - 10.8%) mainly
due to full-scale operations of the Aquatopia attraction within the Astrid Park
Plaza facilities for the year ended December 31, 2004.

         Revenues from our UK hotels have increase by 12%, mainly due to
achieving higher occupancy and average room rates in Victoria London and the
Sherlock Holmes hotels. In reported NIS we had an increase of 17% (as compared
to 12% in GBP) due to devaluation of the NIS against the GBP.

         Revenues from Our Centreville apartments hotel (that form a part of the
Bucuresti complex) have increased by 32.1% mainly due to renovations and the
operation of additional apartments during the year ended December 31, 2004. In
addition, the Centerville apartment hotel achieved higher occupancy rates and
higher rental rates during the year ended December 31, 2004.

         In addition, we believe that the following performance measures, which
are widely used in the hospitality industry, are important to our discussion of
operating performance:

         Total available rooms equals the number of rooms available multiplied
by the number of days in the reported period. We use total available rooms as a
measure of capacity in our system of hotels. Rooms under significant renovation
or construction are excluded from total available rooms.

         Average occupancy (as presented in "Item 4 - Business overview")
represents total paid rooms occupied divided by total available rooms. We use
average occupancy as a measure of the utilization of capacity in our hotels.

         Revenue per available room ("RevPAR") represents total room revenues
divided by total available rooms. We use RevPAR as an index for comparative
performance in our system of hotels.

         The average RevPAR for our operating hotels (excluding the UK leased
hotel and the Centreville apartments hotel) for the year ended December 31, 2004
was NIS 461 ($ 107) as compared to NIS 429 for the year ended December 31, 2003.

     Revenues from the Arena

         The revenues of the Arena are derived from rent fees, management fees
and operations of the Arena attractions.

         In general, the rent fee per square meter is composed of the higher of
a minimum rent per square meter and a percentage of the lessee's revenues. The
minimal rent per square meter in the Arena varies between $10 - $90 and depends
on the business segment of the lessees, the quality of the location at the Arena
and the size of the tenant area space.

                                      -39-
<PAGE>
         We charge management fees to the Arena tenants in order to cover our
expenses related to the operation of the Arena such as security, cleaning,
marketing, utilities, maintenance and other operating costs. In accordance with
the management agreements, the management fees charges are defined mainly on the
basis of cost plus margin. We have decided, for the time being, to charge a
management fee on a lower based fixed charge per square meter, in order to
support the tenants in the beginning of their operations until the Arena
achieves the level of activity and market positioning in accordance with our
business plans.

         Both the rent fees and the management fees are denominated in NIS and
adjusted to the Israeli CPI.

         The Arena is a two-story building consisting of two above - ground
floors, and a parking lot consisting of approximately 1,500 parking spaces in
three underground floors. The total area of the Arena is approximately 120,000
square meters of which 26,500 square meters are leaseable, 60,000 square meters
are parking spaces and the remaining areas are public spaces. As of December
2004 and May 2005, we had signed lease agreements relating to approximately
21,800 and 23,200 square meters, respectively, out of approximately 26,500
square meters leasable space. The remaining space is in various stages of
negotiations. We have decided, for the time being, that the parking lot is
available for the Arena visitors with no charge. This strategic decision might
be changed in the future.

         Our total revenues from the Arena for the year ended December 31, 2004
were NIS 55.3 million ($12.8 million) as compared to NIS 20.1 million for the
year ended December 31, 2003.

          This increase is attributed to an increase in revenues from rent fees
and management fees which have increased by NIS 30.0 million ($ 6.9 million) due
to the fact that the Arena achieved almost full scale operations at the end of
2004, as compared to operations in 2003 on a partial basis, beginning in June
2003.

         In addition most of the Arena attractions commenced operations at the
end of the first quarter of 2004, accordingly revenues from these operations
totaled NIS 6.2 million ($1.5 million) for the year ended December 31, 2004 as
compared to NIS 0.2 million for the year ended December 31, 2003.

     Revenues from asset leasing

         On January 6, 2003 the Bernard Shaw hotel was leased to a company
engaged in the hotel business for a term of 25 years in consideration for a
payment of a fixed amount in each one of the first four years and from the fifth
year on, the amount will be adjusted upwards at the rate of 2.5% per annum. In
accordance with generally accepted accounting principles the revenues from this
lease is recognized by the straight-line method over the lease term. Total
revenue derived from this lease for the year ended December 31, 2004 was NIS
13.2 million ($3.1 million) as compared to NIS 13.5 million for the year ended
December 31, 2003. The difference is attributable to exchange rate differences.

     Gross profit

         Total gross profit for the year ended December 31, 2004 was NIS 86.2
million ($20.0 million), or 30.0% of total revenues, as compared to NIS 69.0
million, or 31.0% of total revenues, for the year ended December 31, 2003.

         Our hotel segment gross profits increased to NIS 80.7 million ($18.7
million), or 37.0% of the hotel segment revenues for the year ended December 31,
2004 from NIS 60.9 million, or 32.2% of the hotel segment revenues for the year
ended December 31, 2003. The increase is the result of increase in revenues of
the hotel segment and to improved efficiency in our costs of revenues of this
segment.

         The Arena has a gross loss in the amount of NIS 4.6 million ($1.1
million) for the year ended December 31, 2004 as compared to NIS 1.9 million for
the year ended December 31, 2003. The Arena gross loss is explained by two
factors: (i) the Arena achieved almost full - scale operations only at the end
of 2004. As a result, Arena's revenues does not represent full- scale operations
during 2004 while most of the Arena's operational expenses are fixed and do not
vary with the Arena's revenues or leased spaces. We expect that during 2005 the
Arena will achieve full-scale operations; and (ii) the Arena's cost of revenues
includes depreciation costs in the amount of NIS 31.1 million ($7.2 million) for
the year ended December 31, 2004 as compared to NIS 11.0 million for the year
ended December 31, 2003. Excluding these depreciation costs, the Arena's gross
profit would be NIS 26.5 million ($6.2 million) or 47.8% of the Arena's revenues
for the year ended December 31, 2004 as compared to NIS 9.1

                                      -40-
<PAGE>
million or 45.2% for the year ended December 31, 2003.

     Operating expenses

     Our operating expenses are as follows:

         Hotels' depreciation, amortization and operating expenses for the year
ended December 31, 2004 were NIS 64.5 million ($15.0 million) as compared to NIS
50.4 million for the year ended December 31, 2003. This increase is mainly due
to an increase in the hotels' operating expenses to NIS 25.8 million ($ 6.0
million) for the year ended December 31, 2004 as compared to NIS 18.4 million
for the year ended December 31, 2003 which is attributed to the increase in the
volume of the hotel operations. The operating expenses include fixed expenses of
each hotel (which do not vary with the hotel revenue, occupancy rate or gross
profit) such as insurance and local taxes, and variable expenses, such as
management fees, incentive fees and expenses reimbursements to Park Plaza. In
addition, we had an increase in our hotels' depreciation and amortization
expenses to NIS 38.7 million ($9.0 million) for the year ended December 31, 2004
from NIS 32.0 million for the year ended December 31, 2003 which is attributed
mainly to the depreciation expenses of the Aquatopia attraction which commenced
operation in the fourth quarter of 2003.

         Initiation expenses for the year ended December 31, 2004 were NIS 1.6
million ($0.4 million) as compared to NIS 4.3 million for the year ended
December 31, 2003. These expenses represent mainly a write-off of project
development costs that were previously capitalized for which their expected
economic benefit is doubtful and initiation costs of new projects mainly in the
hotel segment.

         Selling and marketing expenses for the year ended December 31, 2004
were NIS 14.0 million ($3.3 million) as compared to 8.9 million for the year
ended December 31, 2003. This increase is attributed to the continuing
advertising and marketing effort to achieve a recognized brand name for the
Arena. Selling and marketing expenses consist of an advertising campaign, public
relations, wages and other related costs.

         General and administrative expenses for the year ended December 31,
2004 were NIS 27.6 million ($6.4 million) as compared to NIS 29.4 million for
the year ended December 31, 2003. This decrease is mainly due to a decrease in
general and administrative expenses mainly consisting of a decrease in salaries
in our biotechnology segment mainly due to the fact that Elscint has decided to
postpone future investment in this segment. This decrease was offset in part by
an increase in the Arena's general an administrative expenses due to fact that
Arena had a full year operations for the year ended December 31, 2004 as
compared to six months of operations for the year ended December 31, 2003.
General and administrative expenses include executive and administrative
salaries, legal, accounting and professional fees, director's fees and
insurance, donations, rental expenses, and depreciation.

     Operating loss

         As a result of the foregoing factors, operating loss for the year ended
December 31, 2004 was NIS 21.6 million ($5.0 million), as compared to NIS 24.0
million for the year ended December 31, 2003.

     Finance expenses, net

         Finance expenses for the year ended December 31, 2004 were NIS 34.8
million ($8.1 million), as compared to NIS 41.3 million for the year ended
December 31, 2003.

         Our finance expenses, net consist of the followings:

         (i)      Interest expenses on bank loans.

         (ii)     Interest income on deposits and loans.

         (iii)    Exchange rate differences on our net monetary assets (mainly
                  deposits and bank loans).

         (iv)     In respect of the year ended December 31, 2003, we also have
                  finance income (expenses) which were attributed to
                  inflationary erosion of our net monetary assets. (See detailed

                                      -41-
<PAGE>
                  explanation below).

         Interest expenses on our bank loans (prior to capitalization of such
expenses to fixed assets under construction) for the year ended December 31,
2004 amounted to NIS 78.8 million ($18.3 million) as compared to NIS 59.9
million for the year ended December 31, 2003. The increase is attributable
mainly to (i) an increase in our bank borrowings for the year ended December 31,
2004 mainly in respect of credit facility for the construction of our Riverbank
hotel in London, (ii) an increase in the average interest margin rate on our
banks loans and (iii) the devaluation of the NIS against the Euro and the GBP
for the year ended December 31, 2004, which caused an increase in the reporting
amount of interest in NIS. In accordance with Israeli GAAP, Elscint capitalized
for the year ended December 31, 2004 interest expenses related to bank loans to
fixed assets under construction (mainly to the Riverbank hotel project) in the
sum of NIS 20.6 million ($4.8 million) as compared to NIS 18.9 million for the
year ended December 31, 2003. As a result, the interest on bank loan included in
our statement of operations for the year ended December 31, 2004 amounted to NIS
58.1 million ($13.5 million) as compared to NIS 41.0 million for the year ended
December 31, 2003.

         Interest income on deposits and loans was NIS 2.9 million ($ 0.7
million) for the year ended December 31, 2004 as compared to NIS 5.3 million for
the year ended December 31, 2003.

         Exchange rate income in respect of our net monetary assets (prior to
capitalization of such exchange rate results to fixed assets under construction)
for the year ended December 31, 2004 was NIS 20.8 million ($4.8 million) as
compared to exchange rate expenses of NIS 11.8 million for the year ended
December 31, 2003. Out of these exchange rate difference results, Elscint
capitalized to fixed assets under construction, exchange rate expenses relating
to bank loans in the amount of NIS 0.6 million for the year ended December 31,
2004 as compared to exchange rates income capitalized to such assets in the
amount of NIS 26.4 million for the year ended December 31, 2003. As a result,
the exchange rate differences income included in our statement of operations for
the year ended December 31, 2004 amounted to NIS 21.4 million ($5.0 million) as
compared to exchange rate difference expenses of NIS 38.2 million for the year
ended December 31, 2003. For additional information and explanations with
respect to our exposure to exchange rate fluctuations see "Item 11- Quantitative
and Qualitative Disclosures About Market Risk."

         Our finance expenses, net, were significantly influenced, for the year
ended December 31, 2004, from applying a new Israeli accounting standard that
ceased the adjustment of our financial statements for inflation. In general
terms, the adjustments of our financial statements for inflation results in
additional finance expenses when our monetary assets are higher than our
monetary liabilities and there is an increase in the CPI during the reported
year. On the other hand, we would have finance income in instances when our
monetary assets are less than our monetary liabilities, and there is an increase
in the CPI during the reported year. As a result of applying this new standard
we had no income or expenses due to inflationary erosion for the year ended
December 31, 2004 as compared to finance income due to inflationary erosion of
NIS 31.8 million for the year ended December 31, 2003.

     Other expenses, net

         Other expenses, net for the year ended December 31, 2004 were NIS 9.4
million ($2.2 million) compared to NIS 16.2 million for the year ended December
31, 2003. Other expenses, net for the year ended December 31, 2004 resulted
primarily from impairment loss in respect of our investments in the Astrid Park
Plaza hotel and the Aquatopia attraction in the amount of NIS 10.5 million ($2.4
million). For additional information see Note 9C to the consolidated financial
statement included in Item 18. In addition, we have a loss from realization of
fixed assets in the amount of NIS 10.3 million ($2.4 million) in respect Arena's
attractions assets disposition. This was offset, in part, by a gain from
realization of foreign currency translation adjustments in respect of repayment
of a shareholder loan by the Victoria Amsterdam hotel and Utrecht Park Plaza
hotel to the Company in the amount of NIS 12.4 million ($2.9 million) and gain
derived from deferred consideration received in respect of realization of
Algotech shares in the amount of NIS 3.4 ($0.8 million).

     Share in loss of an associated company

         Share in loss of an associated company, Gamida, was NIS 6.6 million
($1.5 million) for the year ended December 31, 2004 as compared to NIS 7.0
million for the year ended December 31, 2003.

                                      -42-
<PAGE>
     Loss from continuing operations

         As a result of the foregoing factors, we had a loss from continuing
operations for the year ended December 31, 2004 of NIS 72.4 million ($16.8
million) or NIS 4.37 ($1.01) basic loss per share, as compared to NIS 79.3
million or NIS 4.75 basic loss per share for the year ended December 31, 2003.

     Net profit from discontinuing  operation

         Net profit from discontinuing operation for the year ended December 31,
2004 was NIS 11.1million ($2.6 million) or NIS 0.67 ($0.16) basic earnings per
share, as compared to NIS 13.0 million or NIS 0.78 basic earnings per share for
the year ended December 31, 2003. Net profit from a discontinuing operation
constitutes mainly the collection of receivables previously written off and to
exchange rate differences gain attributed to monetary assets pertaining to a
discontinuing operation.

     Loss

         As a result of the foregoing factors, loss for the year ended December
31, 2004 was NIS 61.4 million ($14.2 million) or NIS 3.70 ($0.85) basic loss per
share, as compared to NIS 66.4 million or NIS 3.97 basic loss per share for the
year ended December 31, 2003.

         FISCAL 2003 COMPARED TO FISCAL 2002

     Revenue from our hotels and leisure segment

         As of December 31, 2003, our hotel segment included seven operating
hotels (including an apartments hotel) with more than 1,013 rooms (which are the
number of rooms Elscint owns based on its pro rata ownership in each particular
hotel) and three hotels under various stages of construction or renovation. The
revenues from our hotels and leisure segment for the year ended December 31,
2003 were NIS 189.2 million as compared to NIS 206.7 million for the year ended
December 31, 2002, a decrease of NIS 17.5 million or 8.4%.

         The following table summarizes our hotels and leisure segment revenues
in their functional currency and in adjusted NIS:

<TABLE>
<CAPTION>
     FUNCTIONAL             REVENUES IN FUNCTIONAL CURRENCY                  REVENUES IN ADJUSTED NIS (THOUSANDS)
     CURRENCY
                              2003            2002         CHANGE           2003           2002           CHANGE
                                                             (%)                                          (%)(*)
                                                             ---                                          ------
<S>                        <C>             <C>             <C>           <C>            <C>               <C>
     Euro (thousands)       19,442          19,287         0.8%          107,574         94,036             14%
     GBP (thousands)         7,724          10,195         (25%)          60,597         76,289            (20%)
     Romanian Lei          143,066         248,680         (42%)          19,252         34,724            (44%)
     (millions)
     S.A Rand                2,682           3,005         (11%)           1,782          1,630            (9%)
     (thousands)
     TOTAL                                                               189,205        206,679             (8%)
</TABLE>

(*)      This change reflects the real change in revenues (in functional
         currency) plus the devaluation/revaluation (net of inflationary
         erosion) of the NIS against each functional currency.

         Revenues from our hotels in The Netherlands and Belgium increased by
0.8% for the year ended December 31, 2003, while in adjusted NIS we reported an
increase of 14%. The difference is attributable to the devaluation of the NIS
against the Euro for the year ended December 31, 2003.

                                      -43-
<PAGE>
         Revenues from our UK hotels decreased by 25% (in adjusted NIS - 20%)
mainly due to the change in the Bernard Shaw Hotel activity from hotel operation
to assets leasing in January 2003, which contributed revenue of GBP 3.4 million
for the year ended December 31, 2002. Excluding the Bernard Shaw Hotel's
revenues for the year ended December 31, 2002 we have had an increase (in GBP)
in our revenues of 14%, which is attributed to increased revenues from our other
UK hotels, mainly due to achieving higher occupancy. In adjusted NIS (excluding
the Bernard Shaw Hotel) we reported an increase of 19% (as opposed to 14% in
GBP) due to devaluation of the NIS against the GBP for the year ended December
31, 2003.

         Our Bucuresti complex is composed of two separate units: Bucuresti
Hotel and Apartments Hotel ("Centreville"). The decrease in revenues was 42%
mainly due to the closing of the Bucuresti Hotel for renovations in December
2002, offset in part by the revenues derived from the Centreville apartments
hotel, which was under various stages of renovation during the first half of
2003.

         The average RevPAR for our operating hotels (excluding the UK leased
hotel and the Centreville apartments hotel) for the year ended December 31, 2003
was NIS 429 as compared to NIS 474 for the year ended December 31, 2002.

     Revenues from the Arena

     The Arena commercial and entertainment center was officially opened, on a
partial basis, in June 2003. The majority of the Arena's revenues were composed
of rent fees and management fees. Our revenues from the Arena for the year ended
December 31, 2003 were NIS 20.1 million.

     As of December 2003, we had signed lease agreements relating to
approximately 19,500 square meters out of approximately 26,500 square meters of
leaseable space. The remaining space is in various stages of negotiations.

     Revenues from asset leasing

         On January 6, 2003 the Bernard Shaw Hotel was leased to a company
engaged in the hotel business for a term of 25 years in consideration for a
payment of a fixed amount in each one of the first four years and from the fifth
year and thereafter the amount is adjusted upwards at the rate of 2.5% per
annum. In accordance with generally accepted accounting principles the revenues
from this lease is recognized by the straight-line method over the lease term.
Total revenue derived from this lease for the year ended December 31, 2003 was
NIS 13.5 million.

     Gross profit

         Total gross profits for the year ended December 31, 2003 were NIS 69.0
million, or 31.0% of total revenues, as compared to NIS 73.6 million, or 35.3%
of total revenues, for the year ended December 31, 2002. Cost of revenues of the
hotels and leisure segment for the year ended December 31, 2002 included a
subsidy received from the Belgian government in respect of hotel's employees'
salaries in the amount of NIS 5.3 million. Without the subsidy the gross profits
for the year ended December 31, 2002 would be NIS 68.3 million or 32.8% of total
revenues. The Arena experienced gross losses in the amount of NIS 1.9 million
for the year ended December 31, 2003. The Arena's gross losses are explained by
two factors: (i) the Arena was partially opened in June 2003 and therefore did
not achieve full-scale operations in that year. As a result, the Arena's
revenues do not represent full- scale operations during 2003 while most of the
Arena's operational expenses are fixed and do not vary with the Arena's revenues
or leased spaces. (ii) the Arena's cost of revenues includes depreciation costs
in the amount of NIS 11.0 million for the year ended December 31, 2003.
Excluding these depreciation costs, the Arena's gross profit would be NIS 9.7
million or 45.6% of the Arena's revenues for the year ended December 31, 2003..

     Operating expenses

     Our operating expenses are as follows:

         Hotels' depreciation, amortization and operating expenses for the year
ended December 31, 2003 were NIS 50.4 million as compared to NIS 61.5 million
for the year ended December 31, 2002. The decrease in these expenses is mainly
due to the change in the Bernard Shaw Hotel activity from hotel operations to
leasing the property in January 2003 and to the closing of the Bucuresti hotel
for renovations in December 2002. As a result, the

                                      -44-
<PAGE>
depreciation cost relating to the Bernard Shaw Hotel was classified as a cost of
revenues related to asset leasing and we have no depreciation costs in respect
of the Bucuresi hotel for the year ended December 31, 2003. In addition, we have
no significant operating costs related to the Bernard Shaw Hotel and to the
Bucuresti hotel for the year ended December 31, 2003. The operating expenses
include fixed expenses of each hotel (which do not vary with hotel revenue,
occupancy rate or gross profit) such as insurance and local taxes, and variable
expenses, such as management fees, incentive fees and expenses reimbursements to
Park Plaza.

         Initiation expenses for the year ended December 31, 2003 were NIS 4.3
million as compared to NIS 1.8 million for the year ended December 31, 2002.
These expenses represent mainly a write-off of project development costs that
were previously capitalized for which their expected economic benefit is
doubtful and initiation costs of new projects in the hotel segment.

         Selling and marketing expenses for the year ended December 31, 2003
were NIS 8.9 million as compared to nil for the year ended December 31, 2002.
These expenses are attributable to marketing efforts for the Arena that was
opened in June 2003.

         General and administrative expenses for the year ended December 31,
2003 were NIS 29.4 million as compared to NIS 31.6 million for the year ended
December 31, 2002. This decrease is mainly due to the decrease in salaries and
related expenses attributable mainly to dividend payments with respect to
incentive shares issued to employees against loans provided by the Company, for
which the sole security for the repayment of these loans are the issued shares.
These dividend payments were recorded as expenses in the statement of operations
for the year ended December 31, 2002. The decrease in general and administrative
expenses was partially offset by an increase in such expenses (mainly salaries
and related expenses) attributable to the commencement of operation of the Arena
in June 2003.

     Operating loss

         As a result of the foregoing factors, operating loss for the year ended
December 31, 2003 was NIS 24.0 million, as compared to NIS 21.3 million for the
year ended December 31, 2002.

     Finance expenses, net

         Finance expenses for the year ended December 31, 2003 were NIS 41.3
million, as compared to finance income, net of NIS 12.8 million for the year
ended December 31, 2002.

         Interest expenses on bank loans for the year ended December 31, 2003
amounted to NIS 59.9 million as compared to NIS 51.0 million for the year ended
December 31,2002. The increase is attributable mainly to (i) an increase in our
bank borrowings for the year ended December 31, 2003, (ii) an increase in the
average interest margin rate on our banks loans and (iii) the devaluation of the
NIS against the Euro and the GBP for the year ended December 31, 2003 which
caused an increase in the reporting amount of interest.

         Exchange rate income (net of inflationary erosion) in respect of our
bank loans for the year ended December 31, 2003 was NIS 47.8 million as compared
to NIS 25.9 for the year ended December 31, 2002. In the year ended December 31,
2003 Elscint capitalized finance income related to bank borrowings (interest,
exchange rate differences and inflationary erosion) to fixed assets under
construction (mainly to the Arena and the Riverbank hotel project) in the sum of
NIS 7.3 million as compared to finance expenses of NIS 22.6 million for the year
ended December 31, 2002.

         In addition we have finance expenses, net (including exchange rate
differences and inflationary erosion) derived from bank deposits in the amount
of NIS 17.4 million for the year ended December 31, 2003 as compared to finance
income of NIS 21.1 million for the year ended December 31, 2002.

     Other expenses, net

         Other expenses, net, for the year ended December 31, 2003 were NIS 16.2
million compared to NIS 21.5 million for the year ended December 31, 2002. Other
expenses, net, for the year ended December 31, 2003 resulted primarily from
impairment of long-lived assets and investments in the amount of NIS 43.7
million. This was offset

                                      -45-
<PAGE>
in part by a gain from realization of Algotech shares in the amount of NIS 24.7
and gain from realization of foreign currency translation adjustments in respect
of repayment of a shareholder loan by SHH to the Company in the amount of NIS
5.8 million.

     Share in loss of an associated company

         Share in loss of an associated company, Gamida, was NIS 7.0 million as
compared to NIS 2.8 million for the year ended December 31, 2002. This increase
is mainly due to the inclusion of Gamida's loss for all of fiscal 2003 while for
the year ended December 31, 2002 we included Gamida's losses only for the
three-month period ended December 31, 2002.

     Loss from continuing operations

         As a result of the foregoing factors, we had a loss from continuing
operations for the year ended December 31, 2003 of NIS 79.3 million or NIS 4.75
basic loss per share, as compared to NIS 26.7 million or NIS 1.6 basic loss per
share for the year ended December 31, 2002.

     Net profit from discontinuing operation

         Net profit from discontinuing operation for the year ended December 31,
2003 was NIS 13.0 million or NIS 0.78 basic earnings per share, as compared to
NIS 88.9 million or NIS 5.33 basic earnings per share for the year ended
December 31, 2002. This decrease resulted primarily from the inclusion of the
results of the sub-assemblies segment (i.e our factory in Ma'alot) for the year
ended December 31, 2002 and from the gain derived from the sale of this segment
(which is a part of our discontinuing operation) in December 2002 (see Item 4 -
"Principal Capital Expenditures and Divestitures").

     Net profit (loss)

         As a result of the foregoing factors, loss for the year ended December
31, 2003 was NIS 66.4 million or NIS 3.97 basic loss per share, as compared to
net profit of NIS 62.3 million or NIS 3.73 basic earnings per share for the year
ended December 31, 2002.

         B. LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

         Our capital resources are (i) lines of credit obtained from Israeli and
foreign banks and financial institutions, (ii) financing margins resulting from
the refinancing of loans extended to the subsidiaries owning our assets (iii)
proceeds from sales of assets and (iv) our available cash and cash equivalents.
Such resources are used for subordinated debt investments in our real estate
assets that are built by Elscint's wholly owned and jointly controlled
subsidiaries that are formed for the construction and operation of our various
real estate assets. The subordinated debt-financing portion is typically 30%,
and Elscint's portion of such amount varies based on the portion of its
ownership in the relevant subsidiary. The balance of the amount needed for the
construction of the assets is financed through the mortgage of the underlying
real estate in favor of local banks that provide financing. The subordinated
debt financing to our wholly owned and jointly controlled subsidiaries is
typically provided by Elscint through shareholder loans that are subordinated to
the bank loans provided to the subsidiary.

         Our short-term liquidity needs include funds for interest and principal
payments on our outstanding indebtedness, corporate general and administrative
expenses and capital expenditures. Our long-term liquidity needs include funds
for construction and/or renovation of our hotels and initiation of new projects.
Due to the Company's nature of activity as an entrepreneurial company within the
real estate business, our ability to obtain the necessary funding relies mainly
on our ability to realize our real estate assets (by their improvement and sale
to third parties or by obtaining re-financing loans) and we depend on real
estate market conditions which may significantly effect our liquidity and
capital resources.

         Our ability to fund operations, make planned capital expenditures, make
required payments on any securities we may issue in the future and remain in
compliance with the financial covenants under our loans

                                      -46-
<PAGE>
agreements will be dependent on our future operating performance. Our future
operating performance is dependent on a number of factors, many of which are
beyond our control, including occupancy rates of our hotel rooms and the room
rates we can charge. These factors are impacted by prevailing economic
conditions and financial, competitive, regulatory and other factors. In the
event that our plans change, our assumptions change or prove to be inaccurate,
business conditions change, or if other capital resources and projected cash
flow otherwise prove to be insufficient to fund our operations (due to
unanticipated decrease in revenues, or increase in expenses and other unforeseen
events), we may be required to seek additional financing. There are no
assurances that, under such circumstances we will be able to obtain such
financing.

FISCAL 2004 CASH FLOWS COMPARED TO FISCAL 2003 CASH FLOWS

         Cash flows from operating activities

         Net cash provided by continuing operating activities for the year ended
December 31, 2004 was NIS 4.6 million ($1.1 million), as compared to net cash
used in continuing operating activities of NIS 5.1 million for the year ended
December 31, 2003. This change was primarily due to improvement in our cash flow
from the hotels and leisure segment, offset in part by an increase in finance
expenses, net (expenses on bank borrowings which were not capitalized to fixed
assets under construction, net of interest income on banks deposits, net).

         Net cash used in discontinuing operating activities for the year ended
December 31, 2004 was NIS 0.4 million ($0.1 million), as compared to NIS 12.2
million for the year ended December 31, 2003. The negative cash flow for the
year ended December 31, 2003 is mainly attributed to realizations of bank
guarantees previously provided to a foreign bank in respect of a former
customer's liabilities to the foreign bank. These guarantees lapsed at the end
of 2003 and we are now attempting to collect these debts from those costumer.

         As a result of the foregoing factors, net cash provided by operating
activities for the year ended December 31, 2004 was NIS 4.2 million ($1.0
million) as compared to net cash used in operating activities of NIS 17.4
million for the year ended December 31, 2003.

         Cash flows from investing activities

         Net cash used in continuing investing activities for the year ended
December 31, 2004 was NIS 197.8 million ($45.9 million), as compared to NIS
165.5 million for the year ended December 31, 2003. This change was primarily
due to a decrease in the proceeds from sale of long term investment and loans to
NIS 4.3 million ($1.0 million) for the year ended December 31, 2004 (mainly
attributed to the deferred consideration received from the realization of
Algotech shares and to collection of long term loans receivable from tenets) as
compared to NIS 274.7 million for the year ended December 31, 2003 (mainly
relating to the refund of bank deposit in the amount of NIS 243.7 million that
served as security for a loan in the same amount and proceeds in the amount of
NIS 28.3 million from the sale of Algotech shares in November 2003). This was
partially offset by (i) a decrease in the purchase of fixed and other assets to
NIS 208.7 million ($48.4 million) for the year ended December 31, 2004 (mainly
relating to the construction of the Riverbank hotel project and to renovation of
apartments in the Bucuresti complex) from NIS 417.0 million for the year ended
December 31, 2003 (mainly relating to construction of the Arena and Riverbank
hotel project) and (ii) an increase in the proceeds from realization of fixed
assets to 20.5 (mainly in respect of realization of our U.S subsidiary's
building in June 2004) as compared to NIS 1.6 million for the year ended
December 31, 2003.

         Net cash provided by discontinuing investing activities for the year
ended December 31, 2004 was NIS 2.1 million ($0.5 million), as compared to of
NIS 94.7 million for the year ended December 31, 2003. This decrease is mainly
attributable to the proceeds received from the buyer of the sub-assemblies
segment at the beginning of year 2003.

         As a result of the foregoing factors, net cash used in investing
activities for the year ended December 31, 2004 was NIS 195.7 million ($45.4
million) as compared to NIS 70.8 million for the year ended December 31, 2003.

         Cash flows from financing activities

         Net cash provided by financing activities for the year ended December
31, 2004 was NIS 133.8 million

                                      -47-
<PAGE>
($31.1 million), as compared to NIS 94.0 million for the year ended December 31,
2003.

         Net cash provided by financing activities for the year ended December
31, 2004 was mainly attributable to the following:

         -        Proceeds from long-term debts in the amount of NIS 308.7
                  million ($71.7 million) which is attributed mainly to
                  long-term refinancing loan agreement of the Victoria Amsterdam
                  hotel and Utrecht Park Plaza hotel (see below), in the amount
                  of NIS 211.0 million ($ 49.0 million) and draw-downs of funds
                  under the long-term credit facility provided for the
                  construction of the Riverbank hotel in the amount NIS 95.5
                  million ($ 22.2 million).

         -        Payment of long term debts in the amount of NIS 134.0 million
                  ($31.1 million) which is attributed mainly to repayment of
                  previous bank loans of the Victoria Amsterdam hotel and
                  Utrecht Park Plaza hotel in the amount of NIS 126.0 million ($
                  29.2 million) subsequent to the refinancing loan provided.

         -        In addition, we executed payments of short term credits, net,
                  in the amount of NIS 40.9 million ($9.5 million).

         Net cash provided by financing activities for the year ended December
31, 2003 was mainly attributable to the following:

         -        Proceeds from long-term debts in the amount of NIS 364.9
                  million which is attributed mainly to (i) long-term
                  refinancing loan agreement of the Bernard Shaw Park Plaza
                  hotel, in the amount of NIS 162.1 million and (ii) a long-term
                  credit facility provided for the construction of the Arena in
                  the amount of NIS 195.1 million,

         -        Payments of long term debts in the amount of NIS 324.0 million
                  which is attributed mainly to repayment of previous bank loans
                  of the Shaw Park Plaza hotel in the amount of NIS 67.2_million
                  subsequent to the refinancing loan provided and a repayment of
                  a long-term bank loan in the amount of NIS 243.7 million out
                  of the deposit that served as security for the aforementioned
                  loan.

         -        In addition, we were provided with a short term credit, net,
                  in the amount of NIS 53.0 million ,attributed mainly to
                  draw-downs of funds under the long-term credit facility which
                  was provided for the construction of the Riverbank.

MAJOR BALANCE SHEET ITEMS MOVEMENTS THAT AFFECT OUR LIQUIDITY

         Cash and cash equivalents decreased to NIS 41.8 million ($9.7 million)
as at December 31, 2004, as compared to NIS 98.5 million as at December 31,
2003. This decrease is primarily attributed to the ongoing cash investments in
the construction of our projects (mainly the Riverbank hotel project and for
completion of the construction works in the Arena), repayment of long-term bank
loans and operational expenses. It was offset in part by a refinancing loan
provided to our hotels in the Netherlands and to proceeds from realization of
our U.S subsidiary's building

         Fixed assets, net, increased to NIS 2,185.3 million ($507.3 million) at
December 31, 2004, from NIS 2,003.4 million at December 31, 2003, primarily due
to the continuing investment in the construction of the Riverbank hotel project
as well as the completion of the construction works of the Arena, and to
devaluation of the NIS against the functional currencies of our investees. This
was offset, in part, by the assets' annual depreciation.

         Short-term credit and long-term debt increased to NIS 1,461.2 million
($339.2 million) as at December 31, 2004, from NIS 1,258.1 million at December
31, 2003. This increase is attributable mainly to obtaining new bank facilities
for the year ended December 31, 2004 (see "financing" below) and the devaluation
of the NIS against the GBP and the Euro for the year ended December 31, 2004,
offset in part by repayment of a long-term bank loans.

         As of December 31, 2004, we had bank loans in the aggregate amount of
NIS 690.2 million ($160.2 million), which, as a result of receipt of waiver
letters from the respective lenders, had a maturity date of January 1, 2006.
These amounts consist of: (i) a bank loan in the amount of NIS 294.5 million
($68.4 million), secured by certain collateral, for which the bank has provided
a letter consenting to reschedule the loan for a period of 10 years, subject to
our furnishing additional agreed upon security and execution of a definitive
long term loan agreement; and (ii) a loan agreement in the amount of NIS 395.7
million ($91.8 million) in respect of which, as of the balance sheet date, we
were not in compliance of certain financial and operational covenants. Should we
fail to provide the banks with the additional security, sign the definitive
agreements or fail to comply with the covenants in the loan agreements, then
these loans could be reclassified as short-term debt. Such classification in our
financial statements may improperly reflect our working capital ratio as well as
other financial indicators since the real-estate assets which were financed by
these loans are classified as non-current assets. Although we were not in
compliance with these covenants, we continue to make payments of principal and
interest according to the original long-term repayment schedule of this loan. We
believe we will reach a favorable resolution of these matters, however we cannot
be certain that this will occur.

FINANCING

                                      -48-
<PAGE>
         In the year ended December 31, 2004 we drew funds mainly from the
following facilities:

                  -        In December 2003 our jointly controlled subsidiary,
                           Riverbank Hotel Holding B.V. ("RBH"), signed a long
                           term credit facility agreement with a bank according
                           to which the bank has made available to RBH a credit
                           facility in the aggregate amount of GBP 67.0 million
                           (in which Elscint's share is GBP 33.5 million). In
                           accordance with the agreement the facility shall be
                           used initially for the payment of the short-term
                           credit facility previously provided by the bank and
                           the remaining proceeds will finance the cost incurred
                           in connection with construction of the hotel. The
                           loan bears annual interest at the basic rate of the
                           bank plus a margin of 1.4%, provided that the
                           interest rate shall in no event be less then LIBOR
                           plus 2.2% per annum. The loan is repayable over a
                           period of 10 years commencing the earliest date of
                           (i) August 27, 2007 or (ii) the Economic Completion
                           Date as determined in the agreement, and the
                           remaining balance is repayable as a bullet repayment
                           at the end of the period. These repayment terms are
                           subject to compliance by RBH with certain financial
                           and operational covenants as stipulated in the
                           agreement.

                           As part of the agreement the bank was provided with
                           (i) a charge over RBH's tangible fixed assets and
                           shares, (ii) a guarantee in favor of the bank
                           provided severally by Elscint Ltd. and companies of
                           the Red Sea Group ("RSG") each in the amount 7.1% of
                           the outstanding loan and (iii) a joint construction
                           completion guarantee in favor of the Bank was
                           provided by Elscint Ltd. and RSG. In addition, RBH
                           has taken upon itself to comply with a number of
                           financial and operational covenants as specified in
                           the loan agreement.

                           In the year ended December 31, 2004 RBH draw funds
                           under this facility in the amount of GBP 22.9 million
                           (Elscints share is GBP 11.4 million) that used for
                           the construction of the Project. As of December 31,
                           2004, RBH'S outstanding loan amount to GBP 61.6
                           million.

                  -        In October 2004 our Jointly controlled subsidiaries,
                           Victoria Hotel C.V ("VHCV") and Utrecht Victoria
                           Hotel B.V ("Utrecht") together with The Mandarin
                           Hotel B.V (a company in the RSG) signed an agreement
                           with a bank for a refinancing loan in the amount of
                           Euro 80.0 million, in which Elscint's jointly
                           controlled subsidiaries' share is Euro 71.7 million.
                           An amount of Euro 42.4 million served as repayment of
                           a previous bank loan extended to the Jointly
                           controlled subsidiaries and the remaining amount was
                           used for repayment of shareholder loans, which
                           increased our available cash. Approximately Euro 4.6,
                           million is repayable during the first 5 years and the
                           remainder is to be paid as a bullet repayment at the
                           end of the term (September 30, 2009). The interest
                           rate on this loan was fixed by a swap transaction at
                           the rate of 5.1% per annum.

                           As a security for the loan the borrowers have
                           provided the bank, amongst others, with charge over
                           the borrowers' real estates and moveable assets,
                           pledge on the borrowers shares, lease agreements,
                           management agreements, income receivables accounts,
                           and insurance rights.

                           As part of the agreement, it was determined that all
                           borrowers and guarantors are jointly and severally
                           responsible towards the bank for each of the other
                           borrower.

                           In addition, the borrowers have took upon themselves
                           to comply with a number of financial and operational
                           covenants as specified in the loan agreement.

                                      -49-
<PAGE>
ASSET DISPOSITION

                  -        In November 2003, the Company sold to a third party
                           its interest (approximately 16%, fully diluted) in
                           Algotech. The proceeds from this sale were
                           approximately $7.8 million (subject to adjustments)
                           out of which an amount of $6.3 million has been
                           received as of December 31, 2003. During the year
                           ended December 31, 2004 and 2005 Elscint has received
                           additional and final proceeds in the amount of $ 0.7
                           million and $ 0.4 million, respectively.

                  -        In April 2004, Elscint Inc. signed an agreement with
                           an unrelated third party for the sale of its building
                           in Rockleigh, New Jersey. Upon the closing of the
                           agreement, in June 2004, Elscint Inc. received total
                           consideration in the amount of $4.75 million.

ASSETS HELD FOR SALE

         At the moment, Elscint has no specific assets held for sale.

CONTRACTUAL OBLIGATIONS

         Our contractual obligations are comprised mainly of long-term loans
from banks and financial institutions and long-term operating leases. These
obligations are linked to foreign currencies (mainly U.S. dollar, GBP and the
Euro). In the following table we summarize our significant contractual
obligations as of December 31, 2004 in NIS while translating them by the
representative exchange rate as of December 31, 2004 between the NIS and the
currency in which the obligation is denominated. Therefore, actual payments of
these amounts (as they will be presented in the financial statements of the
Company in preceding years) are significantly dependent on the exchange rate of
the NIS against foreign currencies and can be significantly different than those
presented in the following table.

<TABLE>
<CAPTION>
CONTRACTUAL OBLIGATIONS                                            NIS (MILLION)
-----------------------                                            -------------
                            LESS THAN ONE        2-3 YEARS          4-5 YEARS      MORE THAN 5 YEARS       TOTAL
                            -------------        ---------          ---------      -----------------       -----
                                YEAR
<S>                         <C>                  <C>                <C>            <C>                     <C>
Long-term debt

obligations (i)                    90               826(ii)              307               568             1,791
Operating lease
obligation (iii)                    5                 11                 11                553               580
Construction services (iv)         83                 --                 --                 --                83
Others (v)                          2                  2                 --                 --                 4
TOTAL                             180                839                318              1,121             2,458
</TABLE>

                  (i)      These amounts include payments of principal and
                           interest in respect of our long-term debt. For
                           additional information in respect of the long-term
                           loan, see Note 13 to the consolidated financial
                           statements included in this report and "Item 11-
                           Quantitative and Qualitative Disclosures About Market
                           Risk."

                                      -50-
<PAGE>
                  (ii)  a. Bank loans include loans granted to the Company
                           from an Israeli bank totaling NIS 294.5 million,
                           secured by a first ranking pledge of BEA shares and
                           certain additional first and second ranking pledges
                           on shares of BEA's subsidiaries, and further secured
                           by first or second ranking pledges on assets and
                           interests acquired by means of the credit line, and
                           as may be required by the bank. In addition, the
                           Company undertook to comply with certain financial
                           covenants, namely maintaining, throughout the
                           duration of the credit, of a minimum ratio of
                           shareholders' equity to total balance sheet assets.
                           The bank has informed the Company of its principal
                           consent to reschedule the repayment of the
                           aforementioned loans for a period of 10 years,
                           subject to the furnishing by the Company of
                           additional agreed upon security as well as the
                           execution of detailed agreements between the parties.
                           The Company's management estimates, based on such
                           understandings, that subject to its provision of such
                           security, the balance of the loan will be rescheduled
                           for a long-term period. The bank has informed the
                           Company in writing, that it does not intend to demand
                           repayment of the loans prior to January 1, 2006. The
                           bank has also informed the Company that in any event
                           of a full or partial sale, issuance or a refinancing
                           by the Company, or in any other event constituting a
                           trigger event, occurring prior to January 1, 2006, a
                           repayment of a certain amount, as agreed upon by and
                           between the parties or failing such agreement as
                           determined by the bank, is to be executed.

                        b. Within the framework of agreements for the receipt
                           from Israeli banks of long-term foreign currency
                           credit facilities in an aggregate amount, in which
                           the Company's share totals to NIS 395.7 million, (for
                           financing hotels and the Arena construction), the
                           companies owning the properties undertook in favor of
                           the banks to comply, throughout the duration of the
                           credit, with certain financial and operating
                           covenants. Should such companies fail to comply with
                           all or any of such covenants, or upon the occurrence
                           of certain events as detailed in the agreements, the
                           banks will then be entitled to demand the immediate
                           repayment of the loans. As of December 31, 2004, the
                           borrowers are yet to comply with certain covenants,
                           which in the opinion of the managements thereof do
                           not affect their repayment ability (principal and/or
                           interest) to the banks on a regular basis and the
                           actual repayments, as aforesaid. The parties to the
                           agreements follow the terms and conditions provided
                           therein in respect of the long-term repayment
                           schedule or in accordance with the agreement with the
                           bank, as the case may be. The borrowers' managements
                           are of the opinion, based on previous experience that
                           the banks will not call for immediate repayment of
                           the credit, as a result of such temporary breaches.
                           The Company's management believes therefore that
                           these loans are vested with a long-term nature. In
                           addition, the banks have informed the Company in
                           writing as to their consent to extend the term of the
                           above-mentioned credit facilities until January 1,
                           2006.

                  (iii)    Our operating lease obligations are subject to
                           periodic adjustment of the lease payments as
                           stipulated in the agreements. In this table we
                           included the lease obligations based on the lease
                           payments for the recent year. For additional
                           information in respect of our operating lease
                           obligations see Note 9B to the consolidated financial
                           statements included in this report.

                  (iv)     This refers to contracts with supplier and
                           subcontractors in respect of the construction of our
                           projects.

                  (v)      Includes NIS 3.0 million ($0.7 million) in respect of
                           agreement between Elscint and the Israeli Tax
                           Authorities for final tax assessment for the years
                           1999 trough 2002 as well as various agreements for
                           supply of services by third parties in the Company's
                           ordinary course of business.

                  In addition, we have agreed with the Rezidor group, regarding
                  the future management of two hotels, currently under
                  construction and/or renovation (the National Ballet Building
                  in Hungary, which is intended to operate under the "Regent"
                  brand name and the Bucuresti hotel in Bucharest, which is
                  planned to operate under the brand name "Radisson SAS"). As
                  part of these agreements we undertook to complete the
                  renovation of the hotels within a period of three years from
                  the execution date of the agreements. Should we fail to comply
                  with such undertaking then the Rezidor group can terminate the
                  agreements with immediate effect upon written notice.

DERIVATIVE INSTRUMENTS

                                      -51-
<PAGE>
         For information about financial instruments used, profile of debt,
currencies, interest rate structure, and the use of financial instruments, see
"Item 11 - Quantitative and Qualitative Disclosure about Market Risk".

LOANS

         A. Set forth below is information with respect to loans taken by us, by
our subsidiaries and by our jointly controlled companies. The loans granted to
our jointly controlled companies are presented in the table at their full value:

<TABLE>
<CAPTION>
                   Amount of Loan
                     and Amount
  Borrower and     Outstanding as     Interest on
     lender          of 12/31/04         Loan               Security for Loan                Other Information
---------------    --------------   --------------   ------------------------------   -------------------------------
<S>                <C>              <C>              <C>                              <C>
Borrower:          3 Credit         With respect     Various pledges (first           As long as any of the
                   facilities in    to Loan I -      and second ranking) on           facilities are
Elscint Ltd.       the aggregate    LIBOR + 2.85%    shares of  wholly owned          outstanding, the ratio
                   total of                          and jointly controlled           between equity and total
                   approximately    With respect     subsidiary companies             assets has to be not less
                   $68.3 million    to Loan II -                                      than 25%
Lender:                             LIBOR + 2.85%
                   Amount                                                             As per a letter received
Bank Hapoalim      outstanding -    With respect                                      from the bank, the bank
                                    to Loan III -                                     will not demand the
                   Loan I in USD    LIBOR + 2.85%                                     repayment of the loan
                   - $0.7 million                                                     prior to January 1, 2006

                   Loan II in
                   Euro -Euro
                   35.1 million

                   Loan III in
                   GBP 10.2
                   million

Borrower:          Utrecht          the Interest     - Mortgage on both               - 6% of principal to be
                   Victoria Hotel   on the loan        hotels (and the Mandarin         paid during first five
Victoria Hotel     B.V.-   Euro     is hedged by       hotel not owned by               years commencing
C.V.and Utrecht    14.0 million     a SWAP             Elscint)                         December 31, 2004
Victoria Hotel                      transaction,
B.V. (and The      Amount           accordingly      - First priority
Mandarin Hotel     outstanding      the fixed          security on moveable
B.V.  - a          Euro 14.0        interest           property, bank accounts        - Balance to be paid at
company owned by   million          rate is            (operating income and            end of term (September
the Red Sea                         5.11% per          debt service reserve),           30, 2009)
Group)             Victoria Hotel   annum              rights of the borrowers
                   C.V. -                              under their management         - Elscint has no
                   Euro                                agreements  and                  interest in the
                   57.8 million                        insurance proceeds               Mandarin hotel included
Lender:                                                                                 in the refinancing
                   Amount                            - First ranking pledge             loan.  Since all
Merrill Lynch      outstanding                         on shares of borrowers           borrowers have joint
International      Euro 57.7                           which own the rights to          and several liability,
                   million                             the land                         Elscint has a mutual
                                                                                        indemnity arrangement
                                                                                        with the owner of the
                                                                                        Mandarin hotel with
                                                                                        respect to liabilities
                                                                                        of each borrower under
                                                                                        the loan, l
</TABLE>


                                      -52-
<PAGE>
<TABLE>
<CAPTION>
                   Amount of Loan
                     and Amount
  Borrower and     Outstanding as     Interest on
     lender          of 12/31/04         Loan               Security for Loan                Other Information
---------------    --------------   --------------   ------------------------------   -------------------------------
<S>                <C>              <C>              <C>                              <C>
 Borrower:         GBP 58.2         the interest     -  Mortgage on hotel             - GBP 12.7 million
                   million          on the loan                                         payable in quarterly
Shaw Hotel                          is hedged by     -  Fixed and floating              installments over a
Holding B.V.       Amount           a SWAP              charge over the                 period of 25 years from
                   outstanding -    transaction,        borrower's                      June 2003.
                   GBP 58.1         accordingly         tangible fixed
                   million          the fixed           assets                        - GBP 21.3 million
Lender:                             interest                                            payable in quarterly
                                    rate is 5.8%     -  Rights to all                   installments from June
Bradford &                          per annum           revenues and                    2008 over a period of
Bingley Plc and                                         profits that will               20 years.
The Governor and                                        be received from
Company of The                                          the long term                 - GBP 24.2 million
Bank of Scotland                                        lease agreement                 payable as a bullet
                                                        with Accor                      repayment in 2027.


                                                     -  First ranking pledge
                                                        on shares of
                                                        subsidiary that
                                                        owns the rights to
                                                        the land

                                                     -  GBP 95 thousand
                                                        deposited to
                                                        guarantee interest
                                                        payments

 Borrower:         Loan:            Prime  - 1%      -  $500,000 deposit to            - Capital repayments
                                                        guarantee repayment of           commenced on October 1,
Park Plaza Hotel   Rand 20                              loan                             2003 with monthly
(Sandton)          million                                                              installments of Rand 33
(Proprietary)                                        -  Mortgage on hotel                thousand.  In each
Ltd.               Amount                                                               succeeding year the
                   outstanding -                     -  Rand 5 million bond              monthly installments
                   Rand 19.3                            over the hotel's                 will increase by Rand
                   million                              movables and debtors             17 thousand
Lender:

Nedcor
Investment Bank
Ltd

Borrower:          Credit           LIBOR + 1.65%    -  First priority                 - GBP 14.1 million of
                   Facility -                           mortgage on the land             the loan repayable in
Victoria Hotel                                          and the building and             20 quarterly
Holding B.V.       GBP 39.9                             lien on all moveable             installments commencing
                   millions                             assets. First ranking            March 2003; balance
                                                        pledge on Victoria               repayable in one
                   Amount                               Hotel Holding B.V's              payment in December 2012
Lender:            outstanding                          shares.
                   -GBP 37.1
Bank Hapoalim      millions                          -  Guarantees by each of
B.M London Branch                                       Elscint and a company
                                                        of the Red Sea Group in
                                                        the amount equal to
                                                        2.5% of total costs of
                                                        the project
</TABLE>


                                      -53-
<PAGE>
<TABLE>
<CAPTION>
                   Amount of Loan
                     and Amount
  Borrower and     Outstanding as     Interest on
     lender          of 12/31/04         Loan               Security for Loan                Other Information
---------------    --------------   --------------   ------------------------------   -------------------------------
<S>                <C>              <C>              <C>                              <C>
Borrower:          Two loans,       First loan -     - Pledge on a security           The Bank has restricted its
                   each for $13.0   LIBOR + 1%         deposit of $14 million         right to realize the Elscint
BEA Hotels         million                                                            guarantee, by linking it to
Eastern Europe                      Second loan -    - Lien on Domino and             the realization of the pledge
B.V.               Amount           LIBOR + 2.5%       Bucuresti shares               over the Bucuresti shares
                   outstanding -                                                      owned by Domino (except for
                   $26 million                       - Lien on BEA Hotel              certain instances stipulated
                                                       Eastern Europe shares          in the loan agreement)
Lender:                                                and a floating lien on
                                                       its assets
Bank Leumi Le
Israel Ltd.                                          - A floating lien on
                                                       Domino's assets

                                                     - Undertaking to
                                                       maintain existing
                                                       ownership structure of
                                                       hotel

                                                     - Unlimited guarantee
                                                       by Elscint

Borrower:          Credit           LIBOR + 2.2%     - Liens on all assets,           Half of the loan will be
                   facility -                          including leasehold            repayable in quarterly
Riverbank Hotel    GBP 67 million                      rights to the land and         installments over 10 years
Holding B.V.                                           goodwill of hotel              commencing at the earliest of
                   Amount                              owning subsidiary              (i) August 27, 2007 or (ii)
                   outstanding -                                                      the Economic Completion Date
                   GBP 61.7                          - First ranking pledge           as determined in the agreement
Lender:            million                             on shares of subsidiary        and the remaining balance will
                                                       that owns the rights to        be repayable as a bullet
Bank Hapoalim                                          the land                       repayment after 10 years
B.M London Branch

                                                     - A joint construction
                                                       completion guarantee
                                                       provided by Elscint and
                                                       a subsidiary of the Red
                                                       Sea Group

                                                     - A guarantee in favor
                                                       of the bank by Elscint
                                                       and a company in the
                                                       Red Sea Group each in
                                                       the amount equal to
                                                       7.1% of the outstanding
                                                       loan

Borrower:          GBP 14.2         LIBOR + 1.4%     - Fixed and floating             - Half of the loan
                   million                             lien on rights to                repayable in quarterly
Grandis                                                borrower's assets,               installments over 10 years
Netherlands        Amount                              including goodwill               commencing December 2002.
Holding B.V.       outstanding                                                          Balance to be repaid after
                   -GBP 12.7                         - First ranking pledge             10 years (December 2012)
                   million                             on shares of subsidiary
                                                       that owns the rights to
Lender:                                                the land

Bank Hapoalim                                        - L5.4 million of the
B.M London Branch                                      loan is guaranteed by
                                                       Elscint Limited and Red
                                                       Sea for 50% each
</TABLE>


                                      -54-
<PAGE>
<TABLE>
<CAPTION>
                   Amount of Loan
                     and Amount
  Borrower and     Outstanding as     Interest on
     lender          of 12/31/04         Loan               Security for Loan                Other Information
---------------    --------------   --------------   ------------------------------   -------------------------------
<S>                <C>              <C>              <C>                              <C>
Borrower:          Credit           LIBOR + 2.5%     - Mortgage on Arena and          As per letter received, the
                   Facility -$46                       the land                       bank will not demand the
S.L.S Sails Ltd.   million                                                            repayment of the loan prior to
                                                     - First ranking pledge           January 1, 2006
                   Amount                              on shares of subsidiary
                   outstanding -                       that owns the rights to
Lender:            $46 million                         the land

Bank Discount                                        - Floating lien on
                                                       assets of center owning
                                                       subsidiary and rights
                                                       with respect to current
                                                       and future tenants

                                                     - A guarantee by Elscint
</TABLE>

B. Our subsidiaries and jointly controlled companies which are engaged in
construction and/or the operation of hotels and the Arena entered into loan
agreements with banks and financial institutions, which include an undertaking
of those companies to comply with certain financial and operational covenants
("covenants") throughout the duration of the respective loans. The covenants
include:, achieving certain operational milestones on certain specified dates
(e.g. scope of lease, etc.); complying with debt cover ratio and "loan
outstanding amount" to secure assets value ratio; complying with certain
restrictions on interest rates; maintaining certain cash balances for current
operations; maintaining equity to project cost ratio and net profit to current
bank's debt; occupancy percentage; average room or rental fee rates; and others.
In addition, we have also entered into credit agreements under which we
undertook to comply with certain financial covenants, namely maintaining a
minimum ratio of shareholders' equity to total balance sheet assets throughout
the duration of the loan. In the event the Borrowers will not be in compliance
with these covenants, the lenders have the right to call the loan for immediate
repayment.

         C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

         Not applicable.

         D. TREND INFORMATION

     Our hotel business is affected by the trends in each of the geographic
areas in which we operate.

     Contrary to the weak results of the hotel industry in years 2001 to 2003,
most of the western European markets experienced in 2004 an increase in revenue
per available room (RevPAR), which was derived mainly from an increase in
occupancy rates. Management believes this has resulted from the trends discussed
below.

     2004 was a significant year for the hotel industry in Europe. Ten countries
joined the European Union making significant changes in the political, cultural
and demographic arena. Europe has hosted two major sporting events: the Olympics
and the Euro 2004 Football Championships, which influenced especially their host
cities. In addition, low cost flight is changing the travel patterns across the
region and is resulting in an increase of travel and revenues in our hotels
business.

     During the last 12 months, several new travel trends have been experienced:
(i) consumers are becoming more independent and show a clear preference for
making their own travel arrangements, mainly due to the increased use and
availability of Internet booking, the increasing number of online booking
engines and the expansion of low-cost airlines; (ii) there has been an increased
in price transparency available on the internet, which combined with economic
and social uncertainty, also means that booking lead times remain short while
price sensitivity stays high; and (iii) the preference for more frequent and
short stay trips has continued to be evident in travel patterns.


                                      -55-
<PAGE>
In 2001 and 2002, the Western European hotel industry generally experienced a
decline in industry results, following the outbreak of "foot and mouth" disease
and the subsequent September 11, 2001 terrorist attacks in New York. This trend
continued in 2003 when the European hotel industry was challenged with operating
and economic conditions that were effected by the war in Iraq and the outbreak
of SARS. These events caused a continuance in the slow down of corporate
spending. In addition, weak domestic demand coupled with an appreciating Euro
has resulted in a weak growth across the Euro-zone.

Although the situation in Iraq remains unsettled and political unrest and
terrorism has flared up several times in other Iraqi cities, the impact on
economies and hotel performance has not been as harsh in 2004 as it was in the
aftermath of 9/11.

The Asian's tsunami disaster, at the end of 2004, has not impacted Europe
results in 2004. The UK and particularly the London hotels have enjoyed an
improvement in results reversing the poor trends of recent years, especially due
to: (i) the improvement in the economic conditions and growth to the GDP; (ii)
low inflation in spite of the increase of interest rates; and (iii) the strong
increase in the number of visitor. The market has seen recovery in both tourist
arrivals and corporate business.

The strength of the Euro against the GBP is making the UK more price competitive
for Europeans than ever before. London, in particular, has enjoyed a remarkable
comeback given the global events of the last three years.

Amsterdam is struggling to sustain demand from the corporate market and has lost
profitable conference and incentive business to cheaper locations across Europe.

However, the positive outlook and the continuation of a recovery from the 3
years of decline, will depend on the global geopolitical situation and security
stability. Appreciation of the Euro will also encumber growth of the European
economy relative to the rest of the world.

Some of the Central Europe countries joining the EU are expected to have
improved hotel operations and performance due to lower prices and cost of living
and extra travel routes with cheaper flight prices

IMPACT OF DEVALUATION ON RESULTS OF OPERATIONS AND ON MONETARY ASSETS AND
LIABILITIES

         The following table sets forth, for the periods indicated, certain
information with respect to the rate of inflation in Israel, the rate of
devaluation of the NIS in relation to the U.S. dollar and the rate of inflation
in Israel adjusted for the NIS-dollar devaluation:

<TABLE>
<CAPTION>
                                                                                                         ANNUAL
                                                                                                       DEVALUATION
                           ISRAELI                                                                    ADJUSTED FOR
                          CONSUMER                                CLOSING            ANNUAL               ANNUAL
     YEAR ENDED          PRICE INDEX     ISRAELI INFLATION     EXCHANGE RATE       DEVALUATION         INFLATION (%)
    DECEMBER 31,         (UNITS)(1)         RATE (%)(2)       OF THE DOLLAR(3)     RATE (%)(4)             (5)
-------------------    -------------     -----------------    ----------------     -----------        --------------
<S>                    <C>               <C>                  <C>                  <C>                <C>
        2000                168.5                0               NIS 4.041            (2.7)               (2.7)
        2001                170.9               1.4              NIS 4.416             9.2                 7.7
        2002               182.01               6.5              NIS 4.737             7.2                0.65
        2003               178.58              (1.88)            NIS 4.379            (7.56)             (5.77)
        2004               180.74               1.20             NIS 4.308            (1.62)             (2.78)
</TABLE>

         (1)  For purposes of this table, the CPI figures use 1993 as base equal
              to 100. These figures are based on reports of the Israeli Central
              Statistics Bureau.

         (2)  Annual inflation is the percentage change in the CPI in Israel
              between December of the year indicated and December of the
              preceding year.

         (3)  Closing exchange rate is the rate of exchange between the NIS and
              the dollar at December 31 of the


                                      -56-
<PAGE>
              year indicated, as reported by the Bank of Israel.

         (4)  Annual devaluation is the percentage increase in the value of the
              dollar in relation to the NIS during the year indicated.

         (5)  The percentage of the annual devaluation adjusted for annual
              inflation is obtained by dividing the percentage of the annual
              devaluation rate plus 1 by the percentage of the annual Israeli
              inflation rate plus 1, minus 1. For information about inflation
              rates and exchange rates of foreign currencies of autonomous
              units, see Note 2 of the Notes to the Consolidated Financial
              Statements.

         E. OFF-BALANCE SHEET ARRANGEMENTS

         Not applicable.

         F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

         See the table under the section entitled "Liquidity AND CAPITAL
         RESOURCES" above.

         G. SAFE HARBOR

         This annual report on Form 20-F contains "forward-looking" statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(collectively, the "Safe Harbor Provisions"). These are statements that are not
historical facts and include statements about our beliefs and expectations.
These statements contain potential risks and uncertainties and actual results
may differ significantly. Forward-looking statements are typically identified by
the words "believe", "expect", "intend", "estimate" and similar expressions.
Such statements appear in this annual report and include statements regarding
the intent, belief or current expectation of Elscint or its directors or
officers. Actual results may differ materially from those projected, expressed
or implied in the forward-looking statements as a result of various factors
including, without limitation, the factors set forth below under the caption
"Risk Factors" (we refer to these factors as "Cautionary Statements"). Any
forward-looking statements contained in this annual report speak only as of the
date hereof, and we caution potential investors not to place undue reliance on
such statements. We undertake no obligation to update or revise any
forward-looking statements. All subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the Cautionary Statements.

         ITEM 6. -- DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

         A. DIRECTORS AND SENIOR MANAGEMENT

         As of June 20, 2005, Elscint's directors and senior officers were:

<TABLE>
<CAPTION>
NAME                          AGE       POSITION
<S>                           <C>       <C>
Abraham (Rami) Goren (2)      45        Executive Chairman of the Board
Rachel Lavine (3)             39        Director and President
Shimon Yitzhaki (3)           49        Director
Moshe Lion (1)(2)(3)(4)       44        Director
Benny Gal (1)(2)(4)           61        Director
Shlomo Ben Eliyahu            50        Director
Shmuel Peretz (1)(3)(4)       65        Director
Marc Lavine                   51        General Counsel and Corporate Secretary
Uri Levin                     39        Chief Financial Officer
</TABLE>

(1)Member of the Audit Committee
(2)Member of the Donation Committee
(3)Member of the Balance Sheet Committee
(4)Member of the Merger Committee


                                      -57-
<PAGE>
         ABRAHAM (RAMI) GOREN was appointed as Executive Chairman of our board
of directors as of July 1, 1999. Formerly, Mr. Goren had been a partner in the
law firm of Prof. Joseph Gross, Hodak, Greenberg & Co. (now known as Gross,
Kleinhendler, Hodak, Halevy & Co.), a leading Israeli securities and corporate
law firm. From September 1989 until August 1992, Mr. Goren was an associate in
the law firm of Weil, Gotshal & Manges in New York City. Mr. Goren also serves
as a director of various private companies in Israel and abroad. Mr. Goren
received his LL.B. degree from Bar Ilan University in 1986 and an LL.M. degree
from New York University in 1989. Mr. Goren was admitted to the Israeli Bar in
1987 and to the New York State Bar in 1990.

         RACHEL LAVINE was appointed President and a member of our board of
directors in May 1999. Since March 1998, she has also served as Vice President
of Europe-Israel, and from 1994 to 1998 Ms. Lavine served as Chief Financial
Officer of Control Centers. Ms. Lavine is a member of the board of directors of
EMI and is the acting CEO of Plaza Centers (Europe) BV, a wholly owned indirect
subsidiary of EMI. Ms. Lavine holds a Bachelor of Arts degree in accounting from
the College for Management in Tel Aviv, and is a certified public accountant.
Ms. Lavine is married to Marc Lavine, the Company's General Counsel and
Corporate Secretary.

         SHIMON YITZHAKI was appointed a member of our board of directors in May
1999. In May 1999 he was also appointed President of Elbit Medical Imaging Ltd.
("EMI"). Since March 1998, Mr. Yitzhaki has served as the Vice President of
Europe-Israel, and, since the mid-1980's, as Vice President of Control Centers.
Mr. Yitzhaki holds a Bachelor of Arts degree in Accounting from Bar Ilan
University, and is a certified public accountant.

         MOSHE LION was appointed a member of our board of directors in October
2000. Mr. Lion is a senior partner of an accounting firm in Israel and chairman
of Israel Railways. From December 1997 to July 1999 Mr. Lion was Director
General of the Israeli Prime Minister's Office and an economic advisor to the
Israeli Prime Minister. From January 1997 to November 1997 he served as the Head
of the Bureau of the Israeli Prime Minister's Office and as an economic advisor
to the Israeli Prime Minister. Mr. Lion serves as a director of Massad Bank and
the Israel Council for Higher Education and the Wingate Institute for Physical
Education. Mr. Lion holds a Bachelor of Arts degree in accounting and economics
and a Master's Degree in Law (LL.M.) from Bar Ilan University.

         BENNY GAL was appointed a member of our board of directors in October
2000. Mr. Gal is the owner and manager of Gal-BSD Advertising Ltd., a firm
engaged in the advertising field. Mr. Gal holds a business management degree
from the College for Management in Tel Aviv and is a graduate of the Marketing
and Advertising School of the Advertisers Association in Israel. Mr. Gal is also
a graduate of the Corporation Senior Directors training course of the Business
Management Faculty in Tel-Aviv University.

         SHLOMO BEN ELIYAHU was appointed a member of our board of directors in
March 2002. Mr. Ben Eliyahu serves as general director of the Settlement
Division of the World Zionist Organization. Mr. Ben Eliyahu is also a member of
the Israel Lands Council. During 2001, Mr. Ben Eliyahu served as a general
director of the Israel Land Administration, and from 1999 to 2001 Mr. Ben
Eliyahu was the Director General of the Israeli Ministry of Construction and
Housing. Prior to that, Mr. Ben Eliyahu served as a director of the Israeli
Ports and Railways Authority and as a publicly nominated director of a
construction company. Mr. Ben Eliyahu was also a member of the Governmental
Directors General Council and the chairman of the Israeli Contractors Council.
Mr. Ben Eliyahu holds an LL.B. degree from Bar Ilan University.

         SHMUEL PERETZ was appointed a member of our board of directors in March
2003. Mr. Peretz has been serving since 1997 as the president of the Israel
Aircraft Industries European division. Between 1991 and 1996, Mr. Peretz served
as vice president (finance) of the Israel Aircraft Industries. Between the years
1980-2002 Mr. Peretz served as a director of Elta Ltd., Magal Ltd., Medisel
Technologies Inc. SpaceCom Ltd., and Belgium Advanced Technologies (a Belgium
company). Mr. Peretz holds a Bachelor of Arts degree in economics and political
science from the Hebrew University in Jerusalem, as well as a masters of
business administration degree from the New York Institution of Technology.

         MARC LAVINE was appointed as our General Counsel and Corporate
Secretary in August 1999. Mr. Lavine also serves as General Counsel and
Corporate Secretary for EMI and Europe-Israel. From 1977 to 1997, Mr. Lavine was
an associate and partner in the law firms of Miron, Bension & Prywes (Tel-Aviv)
and from 1997 to 1998, he was a partner at Raved Magriso & Benkel (Tel-Aviv).
Mr. Lavine is a graduate of the University of Zimbabwe (B.L., 1974). Mr. Lavine
is married to Rachel Lavine, the Company's President.


                                      -58-
<PAGE>
         URI LEVIN was appointed Chief Financial Officer effective April 2000.
Between 1998 to March 2000 Mr. Levin was the Comptroller of Europe-Israel from
1998. From 1996 to 1998, Mr. Levin was Assistant Chief Financial Officer of
Control Centers. Prior thereto, Mr. Levin was with Almagor & Co. (Tel-Aviv),
Certified Public Accountants. Mr. Levin holds a Bachelor of Arts degree in
accounting from the College for Management in Tel Aviv and is a certified public
accountant.

         There are no arrangements made with directors and senior management for
their appointment.

         B. COMPENSATION OF DIRECTORS AND MANAGEMENT

         The aggregate compensation paid to or accrued on behalf of all of our
officers and directors for the year ended December 31, 2004, as a group, was
approximately NIS 3.9 million (approximately $0.9 million) of which NIS 221,000
(approximately $51,000) has been accrued by the Company to provide pension and
retirement benefits, and NIS 272,000 (approximately $63,000) was paid to
directors in their capacities as directors. As to cost allocation agreement
entered into by us and our affiliates see Item 7 - related party transactions.

         As to ownership of shares and/or options by our directors and executive
officers, see Item 6E - Share Ownership.

         C. BOARD PRACTICES

         ELECTION OF DIRECTORS. Our directors are elected by our shareholders at
the annual meeting of the shareholders by an ordinary majority. Generally, the
nominees for a director's office are recommended by the board of directors. The
directors hold office until the next annual meeting of our shareholders. Our
board of directors may appoint additional directors to our board of directors in
the event the number of directors is less than the maximum number authorized by
our articles of association. Any director so appointed will hold office until
the next general meeting. Our board of directors consists of 7 members. Our
current directors (other than the external directors) were appointed by our
shareholders at their annual meeting on March 23, 2005 and will hold office
until the next annual meeting of our shareholders. None of our directors has a
service contract with us or with our subsidiaries.

         EXTERNAL DIRECTORS; INDEPENDENT DIRECTORS

         The Companies Law requires Israeli public companies (including
companies whose shares were offered to the public outside of Israel) to appoint
at least two external directors. The Companies Law provides for certain
qualifications that a candidate for external directorship must comply with.
Among such requirements, a person may not be appointed as an external director
if such person or person's relative, partner or employer, or any entity
controlled by such person, has, at the date of appointment, or had at any time
during the two years preceding such date, any affiliation with the company, any
entity controlling the company at the date of his appointment or any entity
controlled by the company or by the entity controlling the company. The term
"affiliation" is broadly defined in the Companies Law.

         In addition, no person may serve as an external director if such
person's position or other business creates, or may create, conflict of interest
with the person's position as a director, or if such position or other business
may impair such person's ability to serve as a director. The Companies Law
provides for additional qualification requirements that are imposed on such
candidates.

         External directors shall be appointed by a general meeting of
shareholders, and that the approval of such appointment requires that at least a
majority of the votes of shareholders present at the general meeting voted for
such proposal, provided that (i) such majority vote at the general meeting shall
include at least one third (1/3) of the total votes of non-controlling
shareholders present and voting at such general meeting, excluding abstaining
votes, or (ii) the total number of votes of the shareholders mentioned in clause
(i) above that voted against such proposal does not exceed one percent (1%) of
the total voting rights in the company.

         The initial term of an external director is three years and such term
may be extended for an additional three-year period. Each committee of a
company's board of directors that is authorized to exercise powers of the board
of directors is required to include at least one external director, and all
external directors must be members of the company's audit committee.


                                      -59-
<PAGE>
         An external director is entitled to reimbursement of expenses and to
monetary and other compensation as provided in regulations promulgated under the
Companies Law, but is otherwise prohibited from receiving any other
compensation, directly or indirectly, in connection with services provided by
such person as an external director.

         Mr. Moshe Lion and Mr. Benny Gal were elected in August 28, 2003 as our
external directors for their second three-year term. Under a recent amendment to
the Companies Law, at least one of the external directors is required to have
financial expertise and the other external director is required to have
professional expertise. This amendment will enter into effect upon the
determination of qualifications for financial and professional expertise by
specific regulations.

         Under NYSE rules, a controlled company, which is a company in which
more than 50% of the voting power is held by an individual, a group or another
company, need not comply with listing requirements regarding a majority of
independent board members, the establishment of a nominating/corporate
governance committee and a compensation committee. Our board of directors has
determined that we are a controlled company, based on approximately 61% of our
voting power being held by our parent company, EMI, and we are therefore exempt
from such requirements. Nevertheless, our current composition of the board of
directors consists of a majority of independent directors, though there is no
assurance that such composition will be sustained in the future.

         BOARD COMMITTEES

         Our board of directors has established an audit committee, a
balance-sheet committee, a donation committee and a merger committee, as
described below.

         AUDIT COMMITTEE. The Companies Law requires public companies to appoint
an audit committee. The responsibilities of the audit committee include
identifying irregularities in the management of the company's business and
approval of related party transactions as required by law. An audit committee
must consist of at least three members, and include all of the company's
external directors. However, the chairman of the board of directors, any
director employed by the company or providing services to the company on a
regular basis, any controlling shareholder and any relative of a controlling
shareholder may not be a member of the audit committee. An audit committee
recommends approval of transactions that are deemed interested party
transactions, including directors' compensation and transactions between a
company and its controlling shareholder or transactions between a company and
another person in which its controlling shareholder has a personal interest.

         In accordance with the Sarbanes-Oxley Act of 2002 and NYSE
requirements, our audit committee is comprised of three members, all of whom
meet the independence and financial literacy requirements of those rules.

         The NYSE rules also require that at least one member of the audit
committee be a financial expert. Our board of directors has determined that each
of Messrs. Lion and Peretz are audit committee financial experts under the SEC
rules.

         Our audit committee operates in accordance with a charter adopted prior
to the enactment of the Sarbanes-Oxley Act of 2002. We expect to update our
charter in accordance with the new NYSE requirements, which will apply to us, on
July 31, 2005.

         BALANCE-SHEET COMMITTEE. The balance sheet committee was established to
thoroughly peruse the financial statements and discuss certain key issues
arising there from, and to recommend the board of directors whether or not to
approve our financial statements.

         DONATION COMMITTEE. Our articles of association authorizes us to make,
from time to time, contributions of reasonable sums for worthy causes, even if
such contributions do not fall within our business considerations as referred to
in section 11 of the Companies Law, 1999. Our donation committee is authorized
to determine, in its discretion, with respect to any contribution, the amount
thereof, its purpose, the entity to receive the contribution and any other term
or condition relating thereto.

         MERGER COMMITTEE. Following an approach to us, by an independent
committee of EMI regarding a possible combination of the two companies in a
share-for-share transaction, whereby EMI would acquire the shares of Elscint it
does not already own, our board of directors has decided to establish its own
independent committee, to discuss


                                      -60-
<PAGE>
and review the proposal, and if deemed appropriate, to negotiate the terms and
conditions upon which such a transaction may be concluded. In addition, the
independent committee will seek and appoint financial, legal and other advisers
as may be necessary to evaluate the fairness of the proposal on behalf of our
shareholders.

         CORPORATE GOVERNANCE - DIFFERENCES BETWEEN NYSE REQUIREMENTS AND HOME
         COUNTRY PRACTICE

         As an Israeli company listed on the NYSE we are permitted to follow our
home country practice in lieu of certain provisions of the NYSE corporate
governance requirements and disclose any significant ways in which such
corporate governance practices differ from those followed by domestic companies
under NYSE listing standards. The following summarizes significant ways in which
our corporate governance practices differ from those required to be followed by
domestic companies under NYSE listing standards. This summary does not refer to
any or all NYSE corporate governance rules from which we are exempt by virtue of
our being a "controlled company". The following also excludes all requirements,
which have either not yet came into force or those which we have voluntarily
elected to follow.

         Executive Sessions: Under NYSE Rules, non-management directors of each
domestic listed company must meet at regularly scheduled executive sessions
without management. Our home country practice does not have any such
requirements.

         Shareholder approval of Equity Compensation Plans: Under NYSE Rules
shareholders must be given the opportunity to vote on all equity-compensation
plans and material revisions thereto, with certain limited exemptions as
described therein. We intend to follow the requirements of the Israeli Companies
Law under which requirement for shareholders approval is generally required in
circumstances where our directors or controlling shareholders would be entitled
to receive equity under the equity-compensation plan.

         Corporate governance guidelines: Under NYSE Rules domestic listed
companies must adopt and disclose their corporate governance guidelines. Our
home country practice does not have any such requirements.

         D. EMPLOYEES

         As of May 31, 2005, Elscint and its subsidiaries employed approximately
1,100 persons (including employees of subsidiaries and jointly controlled
subsidiaries), of whom approximately 290 were employed in Israel. The increase
by approximately 130 employees in Israel during 2004 and 2005 is a result of the
acquisition of Mango.

         To date, Elscint has enjoyed good employee relations and has never
experienced labor disputes, strikes or work stoppages. There are however a
number of labor related claims pending against the Company's subsidiary in
Romania following the lay-offs carried out in 2002 (see "Legal Proceedings-
Claims relating to the Bucuresti Hotel Complex, Bucharest, Romania").

         E. SHARE OWNERSHIP

         EMPLOYEES AND OFFICERS INCENTIVE PLAN 2001

         At their annual meeting held on October 18, 2001, Elscint's
shareholders approved the issuance of 850,000 ordinary shares (the "2001 PLAN")
to employees and officers of Elscint and its subsidiaries and to employees of
Europe-Israel who provide services to the Company.

         As of May 31, 2005, 802,500 shares (out of which 81,000 shares were
subsequently returned to the 2001 Plan and are currently held by a trustee for
our benefit under the 2003 option plan) had been issued at a price per share of
NIS 15.65 (the share price on the last trading date prior to the issuance). Out
of total shares allocated 65,000 shares were sold. The rights of the recipients
to retain the shares vest over periods of two or three years following the
issuance (i.e., 50% or 33% of the shares will become available for purchase at
the end of each year).

         We granted the recipients non-recourse loans for the purpose of
financing the purchase of the shares that were offered to them, in amounts equal
to the full purchase price of the shares. The loans were granted for a period of
five years, bearing interest at an annual rate of 6%. Value added tax payable in
respect of the interest will be paid


                                      -61-
<PAGE>
by the Company. In addition, we will pay any taxes, if applicable and when due
from the recipients as a result of the payment of interest. The principal of the
loan and the interest thereon will be repaid upon the expiration of five years
after the grant of the loan.

         The shares were issued to a trustee for the benefit of the recipients,
and are held as collateral for the repayment of the loan by each recipient.
Notwithstanding the foregoing, each recipient of shares is entitled to instruct
the trustee to transfer or sell any vested shares, provided that in such event
the recipient shall deposit a percentage of the loan (capital and interest)
equal to the pro rata number of shares sold or transferred out of the total
number of shares issued to such recipient, in an interest bearing deposit in the
recipient's name. The deposit shall serve as collateral and the Company will
have recourse to the deposit for the payment of the portion of the loan.

         Each of the recipients shall have voting rights only in respect of
vested shares. The recipient shall be entitled to exercise such voting rights
with respect to vested shares regardless of whether the recipient actually
repays the loans for such shares. As of May 31, 2005, all the shares had vested.

         In the event that we declare payment of a cash dividend, and on the
record date for the payment of such cash dividend offered shares are held by the
trustee for the recipients (including offered shares not yet vested), we shall
transfer to the trustee, for the account of the recipients, cash dividends in
proportion to the amounts of offered shares held by the trustee in favor of the
recipients, after withholding any applicable tax. The trustee shall transfer the
cash dividends to the recipients pro-rata to their holdings, regardless of
whether their right to receive the offered shares has vested.

         OPTION PLAN 2003

         In light of the Sarbanes-Oxley Act which prohibits the grant of loans
to directors and officers of a public company, the Company's shareholders at
their annual meeting held on December 30, 2003 resolved to adopt a new
Employees, Directors and Officers Incentive Plan (the "PLAN") and to cancel the
2001 Plan. Under the Plan, the Company may grant options to purchase up to
116,000 ordinary shares. Following the Plan's approval there can be no new
allocations under the 2001 Plan. The maximum number of ordinary shares that may
be issued under the Plan (subject to adjustments) is 116,000. This amount is
equal to the number of ordinary shares that have not yet been issued under the
2001 Plan plus the number of ordinary shares issued thereunder which have been
returned to the trustee under the 2001 Plan pursuant to the terms thereof.

         The options issued to the trustee for the benefit of the offerees
pursuant to the Plan will be issued without consideration. The board of
directors will determine the exercise price for each option granted pursuant to
the Plan. Options issued pursuant to the Plan are not transferable by the
offeree and/or any third party except in the event of death of the offeree or
pursuant to applicable law, all as detailed in the Plan.

         The board of directors, or a committee thereof, will determine the
vesting periods for the exercise of options issued to the trustee for the
benefit of any offeree under the Plan. Following the expiration of all vesting
periods applicable to any offeree, the offeree shall be entitled to exercise all
of the options issued to the trustee for such offeree's benefit, all subject to
the provisions of the Plan.

         The shares issued upon the exercise of any options under the Plan shall
have equal rights to those of our other shares immediately upon their issuance
and shall be entitled to dividends and all other benefits with respect to which
the determining date is on or following the date of issuance of such exercise
shares.

         As of May 31, 2005, 50,000 options were granted to two of our directors
pursuant to the Plan at an exercise price of $ 4.68. The options vest over
periods of two years following the issuance (i.e., 50% of the options will
become available for purchase at the end of each year). As of May 31, 2005,
25,000 options had vested.

         The following table indicates vested share ownership in the Company of
all directors and officers as of the most recent practicable date (all of whim
hold less than 1% of the Company's voting securities):

<TABLE>
<CAPTION>
NAME                          NUMBER OF SHARES
<S>                           <C>
Abraham (Rami) Goren          90,000
</TABLE>


                                      -62-
<PAGE>
<TABLE>
<S>                           <C>
Rachel Lavine                 100,000
Shimon Yitzhaki               50,000
Moshe Lion                    25,000
Benny Gal                     25,000
Shlomo Ben Eliyahu            12,500
Shmuel Peretz                 12,500
Marc Lavine                   50,000
Uri Levin                     25,000
</TABLE>

         ITEM 7. -- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

         A. MAJOR SHAREHOLDERS

         The Company had, as of May 31, 2005, 16,835,220 (such number excludes
657,923 dormant shares held by the Company, which do not have voting and equity
rights).

         The following table indicates, as of May 31, 2005, the number of
ordinary shares owned by (i) all shareholders who we know own 5% or more of our
ordinary shares and (ii) all of our current directors and officers as a group:

<TABLE>
<CAPTION>
                                               NUMBER OF SHARES BENEFICIALLY          PERCENT OF SHARES BENEFICIALLY
NAME AND ADDRESS                                           OWNED                                 OWNED (%)
<S>                                            <C>                                    <C>
Elbit Medical Holdings Ltd.1
13 Yehuda Mozes Street
Tel Aviv, Israel                                         10,269,784                              61.00

Fidelity Management & Research Co.
82 Devonshire Street
Boston, MA 02109-36142                                    1,021,200                               6.07

Leumi Pia Trust Company Management Co.
Ltd.3
31-33 Montefiore Street
Tel Aviv, Israel                                          1,243,127(4)                            7.38

All directors and officers of the Company
as a group (9 persons)                                      390,000(5)                            2.32
</TABLE>

----------
1        Elbit Medical Holdings Ltd. is a wholly-owned subsidiary of EMI, whose
         stock is listed on the Nasdaq National Market and on the TASE. As of
         May 31, 2005, Europe-Israel, a privately held company, held
         approximately 53.55% of the issued and outstanding share capital of
         EMI. Europe-Israel is a wholly owned subsidiary of Control Centers.
         Control Centers is engaged, through its direct holdings in
         Europe-Israel and through Europe-Israel's direct and indirect wholly
         and partially owned subsidiaries and affiliates, in the following core
         businesses: real estate investments, development and operation of
         shopping and entertainment centers, hi-tech and bio-tech investments
         and hotel ownership and management. Control Centers also holds direct
         interests in property development projects in Israel.

2        The amount and nature of beneficial ownership of these shares is based
         solely on information included in a letter dated June 9, 2005, sent to
         the Company by Fidelity Management and Research Co. as of June 8, 2005.

3        The amount and nature of beneficial ownership of these shares is based
         solely on information reported to the Company by Leumi Pia Trust
         Company Management Co. Ltd. in June 2005.

4        A decrease of approximately 210,900 shares since May 2004.

5        Represents the number of shares granted to directors and officers of
         the Company pursuant to the Company's employees and officers incentive
         plan (2001 and 2003), which shares have either vested or will vest
         within 60 days after the date of this report.


                                      -63-
<PAGE>
         The shareholders listed above do not have any different voting rights
from any other shareholder of Elscint. However, by virtue of the fact that Elbit
Medical Holdings Ltd. holds more than a majority of the outstanding shares of
Elscint, it can, in all likelihood, control the direction of Elscint at
shareholders' meetings with respect to proposals, the adoption of which requires
a simple majority vote.

         802,500 additional shares were granted to directors, officers and
employees of the Company (out of which 81,000 shares were subsequently returned
to the plan and were transferred to the option plan 2003 - see "Item 6 - Share
Ownership - Option Plan 2003") pursuant to the Company's officer and employees
incentive plan. Pursuant to such plan only the vested shares confer voting
rights. As of the date of this report all the shares have vested.

         As of May 31, 2005, on the books of our transfer agent there were
approximately 680 holders of record of our ordinary shares with addresses in the
United States, holding approximately 50% of our issued and outstanding ordinary
shares.

         B. RELATED PARTY TRANSACTIONS

         HOTELS AND LEISURE

         In October 2001 an engagement between Bucuresti and Control Centers'
wholly owned subsidiary ("CCS"), was approved at the shareholders' meeting of
the Company. In accordance with such engagement, CCS is to provide coordination,
planning and supervision services with respect to the renovation works of the
Bucuresti Hotel complex, for a fee equal to the lower of (i) 5% of total actual
costs of the renovation works (excluding general and administrative as well as
financing costs); and (ii) 5% of $30 million. The parties are yet to execute a
definitive agreement.

         Elscint's consolidated subsidiaries receives, from time to time,
aviation services from Jet Link Ltd. (an aviation company controlled by Control
Centers) in exchange for a payment based on the latter's price list, net of a
discount of 5%.

         THE ARENA

         In May 2002, our shareholders meeting approved a turn-key agreement by
and between S.L.S. Sails Ltd., Elscint's wholly owned subsidiary (which holds
the rights in the Arena), or SLS, and a company controlled by Control Center, or
CDPM, for the completion of the construction of the Arena in consideration of $
57.7 million. The consideration was determined on the basis of a calculation of
the amount of work remaining to be preformed as at February 28, 2002. The
consideration is subject to adjustments and reductions in respect of payments
made by SLS to third parties sub-contractors, suppliers and consultants from
March 1, 2002, up to the commencement of works by CDPM. In June 2003, CDPM
assigned its rights and obligations under the agreement to another company
controlled by Control Centers, or CCS. The total consideration paid to CCS by
SLS (including adjustments which were approved by our audit committee and our
board of directors subsequent to the assignment date) amounted to NIS 161.8
million. The Company received from Control Centers a construction performance
quality guarantee, in the amount, as of December 31, 2004, of $1.6 million.

         Final approval for completion of construction of the Arena is
contingent on the furnishing, to the local municipality, of a bank guarantee to
secure payment of certain land betterment tax, in an amount of approximately
$1.0 million. Arbitration is currently being held as to this tax liability
between Marina Herzliya Limited Partnership Ltd. (a company controlled by
Control Centers) and the local municipality. The Company's management estimates,
based on professional opinion that no significant costs will be borne thereby,
in respect of this guarantee.

         OTHER

         The Company, Europe Israel and EMI, are bound by an agreement, the
validity of which has been extended through 31 December 2005, for the allocation
of costs (direct and indirect) of internal departments within the group. The
costs are allocated by and between the parties according to actual attribution
thereof. Each party to the agreement may elect to terminate same at the end of
each 12-month period, by giving an advance notice to this effect. The
abovementioned extension was approved by the audit committee and the board of
directors of all parties.


                                      -64-
<PAGE>
         For information on the participation of Elscint together with EMI and
Taya (unrelated party) in the Channel 2 Tender see Item 4 - Principal Capital
Expenditures and Divestitures Currently in Progress or Planned.

         Elscint leases office spaces from Control Center (392 square meters) on
terms that are no less favorable than terms that might be available to us from
unrelated third parties. Mango is expected to lease office spaces from Europe
Israel (approximately 250 square meters) on term that are no less favorable than
terms that might be available to Mango from unrelated third parties based.

         The Company's shareholders approved in its General Meeting, an
insurance coverage to directors and officers of the Company and its subsidiaries
of up to $40.0 million (for event and for the period) within the framework of a
joint insurance policy valid through October 2005 for the Europe Israel group
companies. The Company bears its relative share (33%) of the insurance cost. In
addition, Europe Israel acquired a "Run off" coverage for itself, EMI and the
Company, up to a limit of $20.0 million beyond the coverage of the $40.0 million
included in the additional policies, through September 2006. This insurance
covers officers in respect of events occurring prior to May 1999 so long as they
where unreported and unknown in May 1999.

         The Company's shareholders approved in the General Meeting, the
granting of advanced indemnification certificates to officers and directors,
including those acting in its subsidiaries. The total indemnity shall not exceed
the lower of 25% of the shareholders' equity of the Company as recorded in the
financial statements of the Company as at the indemnification, or $50.0 million,
and all in addition to amounts, if any, which are to be paid by the insurance
companies under certain risk policies, as exist from time to time, for causes
covered by such indemnification policies. The General Meeting also approved an
exemption from liability for any damage caused to the Company by breach of duty
of care by officers and directors.

         Elscint and its investee companies conduct credit, deposit and
management of security portfolio transactions with Bank Leumi le Israel, which
is an indirect interested party in the Company. These transactions are conducted
in the ordinary course of business and under market terms and conditions that
are no less favorable than terms and conditions that might be available to us
from unrelated third parties based on commercially available market terms and
conditions.

         ITEM 8. -- FINANCIAL INFORMATION

         A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         See Consolidated Financial Statements included in Item 18.

         B. SIGNIFICANT CHANGES

         LEGAL PROCEEDINGS

         1. Class Action by Minority Shareholders. In November 1999, a number of
institutional and other investors, holding shares in Elscint, filed a lawsuit in
the Haifa District Court against the Company, EMI, Europe Israel, Control
Centers and others. The plaintiffs also requested the certification of their
claim as a class action suit on behalf of all those who had held Elscint shares
on September 6, 1999, and continued to do so as at the filing date of the suit
(excluding the Company and certain other shareholders). The claim alleges
discrimination against Elscint's minority shareholders arising from various
transactions or activities carried out by its controlling shareholders and
directors, which allegedly caused them financial loss, manifested by the 45% ($
100 million) decline in the value of Elscint's shares in the period from
February 24, 1999 to the claim's filing date.

         The principal remedy requested in the claim is a court order
instructing the Company to carry out a tender offer of Elscint's shares at $14.0
per share as the former allegedly undertook, in its letter to Elscint of
February 1999. As another alternative, the plaintiffs requested the court to
issue an injunction prohibiting execution of the September 9, 1999 transactions
(acquisition of the hotel segment and the Arena commercial center in the
Herzliya Marina (under construction), by Elscint, from EIL and Control Centers,
respectively) and the refund of all and any amounts paid thereunder. Part of the
remedies were refund as a derivative claim on behalf of Elscint.

         The Haifa District Court has rejected the class-action request, however
ruled that the plaintiffs may -


                                      -65-
<PAGE>
notwithstanding so rejecting the request for class-action proceedings - pursue
their matter. The courts ruling was appealed by a number of plaintiffs to the
Supreme Court. The State Attorney General has filed his opinion on this matter,
to the Supreme Court stating the District Court erred in its two legal
conclusions when rejecting the request for class-action suit recognition.
Accordingly, he believes that the plaintiffs should be allowed to appeal and
that the appeal - if filed - should be accepted. The State Attorney General also
stated that, subsequent to the acceptance of this appeal, the class-action
motion should be deliberated on the merits thereof and his position on this
matter, being in support of the plaintiffs, has been filed to the Supreme Court.
In November 2001, the plaintiffs were granted leave to appeal. The Company and
the plaintiffs presented their respective pleadings. As of the date of approval
of these financial statements, the Court has not yet rendered its decision in
the motion for leave to appeal.

         A dispute exists between the parties as to the amount of the court fee
deriving from the classification of the remedy sought in the claim. While the
plaintiffs defined what they were seeking as declaratory remedy, the defendants
maintained that the real remedy being sought in the claim was pecuniary,
obligating the plaintiffs to pay a fee that is significantly higher than that
which has actually been paid. In August 2001, the Registrar of the Haifa
District Court ruled that certain remedies sought were indeed pecuniary, as
contended by the defendants, while other were not. The plaintiffs would
therefore be required to pay a fee, in respect of the former, of NIS 20.1
million. In September and October 2001, appeals of both parties were filed
against the Registrar's decision in the Haifa District Court. In August 2004 the
District Court accepted the appeal filed by plaintiffs and dismissed the
counter-claim, as filed by the Company and the remaining defendants.
Accordingly, the plaintiffs were not required to pay, at this stage, any further
fee beyond that which has already been paid. Notwithstanding the aforesateted,
the Court obliged the plaintiffs to furnish an undertaking ("Undertaking") to
supplement the fee amount, should they be so required.

         The plaintiffs requested postponement of the date for submitting such
Undertaking until the claims' "procedural framework is decided". The defendants
oppose to such an extension.

         In October 2004, the Company as well as the other defendants filed a
motion for leave to appeal the ruling of August 2004 to the Supreme Court. The
defendants petitioned the Supreme Court to set aside the decision of the
District Court and to reinstate the decision of the Registrar as to the
plaintiffs' obligation to pay court's fees. In May 29, 2005 the Supreme Court
ordered Plaintiffs to submit their answer to the defendants motion for leave to
appeal.

         In accordance with the decision of the Chief Justice of the District
Court, the defendants (including the Company) were required to file statements
of defense by March 2005. In October 2004, the Company and the other defendants
lodged motions for leave to appeal to the Supreme Court, in the framework
whereof the Supreme Court was requested to postpone the date for filing defense
statements until the derivative action filed on behalf of Elscint is decided or
until such time that the motion for leave to appeal in respect of the
class-action is resolved.

         On January 25, 2005, the defendants (including the Company) filed
another motion to the Supreme Court, for leave to appeal the decision of the
District Court not requiring the filing of a separate motion for and the
granting of the Court's approval to the derivative relief. The defendants claim
that the filing of a derivative action requires due filing of a motion and
receipt of Court approval and as long as same is absent, the claim should not be
deliberated and defendants are under no obligation to submit their defense
statements. The defendants also requested the Supreme Court to suspend execution
of the District Court's decision, ordering the filing of statements of defense,
within a fixed period of time. On March 1, 2005, the Supreme Court handed down
its decision to grant a provisional stay of execution of the District Court's
decision to file statement of defense.

         On April 7, 2005, the District Court agreed to postpone the plaintiff's
date for submitting their Undertaking to May 1, 2005 and decided that defendants
are to submit their statement of defense within 45 days after the date the
Plaintiffs submit their Undertaking to the court. On April 21, 2005 Plaintiffs
requested the District Court an additional postponement for submitting the
Undertakings (which was granted by the court on May 1, 2005) and that the court
will rule that the Supreme Court's provisional stay governs the District Court's
decision with respect to the defendant's obligation to file their defense as
abovementioned. On May 19, 2005 the Plaintiffs submitted their Undertakings and
the parties are awaiting the District Court's decision with respect to the
latter request of the Plaintiffs.

         Management, based, among other things, on the opinion of their legal
advisers, estimates that at this stage it is not possible to assess the ultimate
results of the claim.


                                      -66-
<PAGE>
         In January 2003, the Company received a letter from one of the insurers
("the Insurer") of Europe Israel EMI and the Company (the "Insured Companies"),
that provides insurance to the Insured companies including insurance pertaining
to the representative claim described above.

         In this letter, the Insurer made certain allegations against the
Insured Companies, including, inter alia, that the Insured Companies breached
their disclosure duties under Section 6(a) to the Insurance Contract Law, 1981,
by failing to disclose to the Insurer material information prior to the issuance
of additional cover to the policy purchased by EIL (the "Policy"), effective as
of July 1999 (the "Additional Cover"), and prior to the replacement of the
Policy and the Additional Cover by the issuance of a new policy effective as of
August 1999 (the "Replacement Cover"). The letter states that the Policy,
Additional Cover and Replacement Cover issued by the Insurer will be cancelled
unless the Insured Companies indicate that circumstances were different than
those described in the letter. The Company's legal counsel sent a reply on
behalf of Europe Israel, EMI and the Company on March 20, 2003, in which the
allegations of the Insurer were rejected. As of the date of the issuance of the
financial statements the Company has not received an answer from the Insurer to
this letter. However, the parties are currently negotiating to reach a
settlement.

         2. Class Action by Investors: The Company and others were served with a
claim as well as a motion to recognize same as a class-action, in respect of
$158 million damage allegedly caused to the represented class. Underlying the
claim is the contention that EMI, through Elscint's board of directors, caused
damage to and discriminated against minority shareholders of the Company. Both
parties agreed to postpone the hearing in this case until the Supreme Court
hands down a decision on the leave to appeal, as detailed in section (1) above.
Management, based on legal advice, is of the opinion that it is not possible at
this stage to estimate the outcome of the claim and the motion for class-action
recognition.

         3. Claims Relating to the Sale of the NM, MRI and CT Businesses. The
Company and its subsidiaries are parties to several court claim as well as
certain other written demands and/or claims, filed against them by third parties
(including governmental institutions), some - without any specified amount,
while others - in the aggregate amount of $43.0 million, as royalties or
compensation for damages allegedly caused as a result of the companies' actions
and/or products, which mainly relate to the medical imaging business sold by the
Company in 1998 and 1999. In respect of certain claims, totaling approximately
$7.5 million, managements of the companies estimate, based on legal opinion
and/or on past experience, that no significant costs will accrue thereto as a
result of said claims exceeding the provisions included in respect thereof in
the financial statements, and that such provisions are adequate for covering the
costs and resources required to settle the liabilities arising therefrom. The
Company's legal advisers cannot presently determine the outcome of other claims,
totaling $35.5 million. Management believes that the prospects for realization
of most such claims and demands are very remote, based on the long period that
has elapsed since serving said demand and on the nature thereof. The companies
have included in their financial statements provisions that are, as per their
discretion based inter alia on specific counsels and past experience, adequate
to cover the costs and resources required to settle the liabilities under these
claims

         4. Claims relating to the Bucuresti Hotel Complex, Bucharest, Romania.
BEA holds, through a wholly owned and controlled subsidiary, incorporated in
Romania ("Domino") approximately 70% of SC Bucuresti Turism S.A. ("Bucuresti")
which in turn owns a complex consisting of a hotel, an apartment hotel,
commercial areas and a restaurant, situated in the heart of Bucharest, Romania
("the Bucuresti Complex"). Bucuresti was purchased through a privatization
tender published by the State Ownership Fund of the Romanian government ("SOF").
The tender procedure was approved by a decision of the Supreme Court of Romania.

         A criminal investigation carried out against a number of suspects
(including former officers in SOF who were involved in the privatization
procedures and the sale of control in the Bucuresti Hotel to Domino) for certain
events relating to the period prior to the acquisition of control in Bucuresti
by BEA, culminated in the filing of an indictment against 17 defendants. Such
criminal proceedings may have an indirect effect on the validity of the
privatization and thereby an indirect effect on Domino's rights in Bucuresti,
notwithstanding Domino not being an accused party under the indictment. The
Court has decided to return the indictment to the Prosecution Office for its
resubmission, although this decision has been appealed. Domino estimates, based
on the advice of legal counsel, that the prospects of these proceedings having a
material affect on its rights in the Bucuresti shares are remote. Legal counsel
based his opinion on the correspondence with A.P.A.P.S (formerly the SOF),
attesting that Domino has fulfilled all its obligations in connection with the
privatization process of Bucuresti.

         A former shareholder in Domino had terminated a partnership agreement
with a third party ("the Plaintiff")


                                      -67-


<PAGE>
regarding the joint investment thereof, in Domino, prior to its acquisition by
BEA. Termination was on the grounds of non-compliance by the Plaintiff with
material obligations under the partnership agreement. The Plaintiff has filed,
as a result, a monetary claim to the Romanian courts against Domino and other
defendants, claiming; (i) an amount of $ 2.5 million, for commissions allegedly
due to the Plaintiff in terms of the partnership agreement, (to which Domino was
a party), pertaining to the tender which allowed the acquisition of control in
Bucuresti; and (ii) the termination of an agreement with an Israeli bank within
the framework of which the shares of Domino in Bucuresti were pledged in favor
of such bank, as security for the repayment of a loan granted to Domino for the
acquisition of such shares. Such former Shareholder provided BEA with an
indemnity against these claims.

         The Court decided to suspend deliberation of the claim, due to the
failure, by the Plaintiff to fulfill certain procedural obligations set by the
Court. Domino estimates, based on legal advice received, that these claims have
no legal or contractual basis whatsoever, and the Plaintiff has no legal
standing regarding the claims. Accordingly, no provision is included in the
financial statements, with respect to these claims.

         In the framework of an agreement to establish a joint company owned by
Bucuresti and a third party, which was signed prior to the acquisition of
Bucuresti by BEA, such third party undertook to invest $27.0 million in the
joint company and in consideration Bucuresti undertook to transfer its rights in
the Bucuresti Complex to the ownership of the joint company. As a result of the
third party's failure to meet its obligations thereunder, Bucuresti has
terminated the partnership agreement and filed an application to the Court to
liquidate the joint company. This application was approved by the Court, though
may be appealed to a higher instance Court. Bucuresti's rights in and to the
hotel may significantly be prejudiced in the event it is obliged to transfer
such rights in the Bucuresti Complex to the joint company. BEA's management is
of the opinion that it is unreasonable that as a result of these proceedings
Bucuresti will be obliged to transfer its rights in the Bucuresti Complex to the
joint company.

         Two claims are pending against Bucuresti, which challenge its ownership
in and to its properties (including an appeal relating to the period of the
State's ownership of the properties which are the subject of the claim, prior to
the sale of Bucuresti's shares to Domino). Both claims were rejected, however
appeals were filed, which are expected to be deliberated in 2005.

         In addition to the above, certain legal proceedings are being conducted
from time to time in Romania within the framework of which it is claimed that
resolutions passed at the general meetings of shareholders of Bucuresti, were
not validly adopted - for procedural reasons only - hence not binding. Some were
approved by the Courts, in respect of some Domino has filed appeals, and others
were rejected. BEA's management is of the opinion that the claims are
provocative and tendentious and will not significantly affect BEA's rights in
the shares of Bucuresti and in the Bucuresti Complex, owned thereby.

         5. Arena - Trade Name: The Company was served with a motion filed by a
third party seeking an injunction to prohibit the Company from using the trade
name "Arena" for the entertainment and commercial center in the Herzliya Marina,
on the grounds of unlawful usage of same, exploitation of goodwill and unfair
competition. In the event the plaintiff's contention is upheld, the Company may
suffer certain indirect losses and costs. An application for an interim
injunction, prohibiting the use of the trade name "Arena," was dismissed by the
court. The Company's legal counsels for this matter are unable to estimate the
results of said lawsuit, though they maintain that the Company has good defense
allegations against this claim.

         6. Algotech: The Company is a formal party to a claim filed by a number
of employees, holding shares of Algotech (sold to a third party in November
2003), against the majority shareholder in Algotech, in the framework of which
the Court issued an injunction precluding the transfer of funds from Algotech to
that shareholder. No remedies were requested against Elscint and the injunction
does not affect the transfer of title to funds which are received as proceeds of
the sale. Management estimates that the said claim will not affect its assets.

         7. Regev Claim: In March 2005, an action (hereinafter: the "Action")
was instituted at the Regional Labor Court in Tel-Aviv-Jaffa by an employee
Vectory investments company, a wholly owned subsidiary of Europe Israel
(hereinafter: the "Plaintiff") against Mr. Mordechai Zisser (Chairman of EMI's
board of directors), Control Centers and Vectory Investments Company Ltd.
(controlling shareholders of the Company) (together hereinafter: the
"Defendants"), in terms of which, the Court was requested to issue a declaratory
order establishing the Plaintiff's entitlement to 14% of the shares of the
companies specified in the statement of claim - including: shares of the Company
and Gamida, which are directly or indirectly, owned and/or controlled by the
Defendants and/or by


                                      -68-
<PAGE>
companies under control thereof. The Court was further requested to order the
transfer of such 14% to escrow.

         The Plaintiff also filed, simultaneously, a motion to grant an interim
injunction prohibiting the Defendants and/or any party on their behalf, from
making any change to and/or transfer and/or assignment and/or pledge of and/or
disposition in 14% of the shares of those companies detailed in the motion.
Underlying the claim is the contention that the Plaintiff's rights under the
statement of claim derive from agreements executed by and between the Plaintiff
and the Defendant companies.

         On March 27, 2005, the Labor Court dismissed substantially all of the
Plaintiff's motion, in determining that the Plaintiff failed to evidence: (i)
his prima facie right to 14%, as he claimed; (ii) his entitlement to rights in
and to companies aside from those directly invested by Europe Israel; (iii) his
right to shares in the Company and in Gamida. The Court's conclusions are merely
in the framework of a provisional proceeding. Nonetheless, Control Centers is of
the opinion that this claim, insofar as it relates to the Company and/or to its
subsidiaries as included in the claim, is provocative, fundamentally, unfounded
and groundless (both with respect to the number of the companies in which rights
are sought and with respect to the scope of rights claimed) and that it will not
materially affect its rights in EMI and its subsidiaries. However, the
Defendants' legal counsels cannot, at this early stage, estimate the outcome of
the claim.

         The Company and its subsidiaries are not parties to the claim, however
the outcome thereof might indirectly affect the nature and scope of their rights
in their investee companies.

         8. Ordinary Course of Business: Elscint and its subsidiaries are
involved from time to time in litigation arising out of the ordinary course of
Elscint's business. Although the outcome of each of these cases is uncertain at
this time, we believe that the resolution of such litigation will not have a
material adverse effect on our financial position.

DIVIDENDS

         On September 19, 2002, Elscint announced that, in light of its
assessment regarding its excess cash and the reduction in short term investment
opportunities, it had decided to focus at that stage on the maximization of its
current investments, and therefore its board of directors declared a dividend of
$1.10 per each ordinary share, aggregating approximately $19.3 million . The
dividend was paid on October 10, 2002. The distribution of the dividend was
ratified by the Company's shareholders in their Annual Meeting held on December
31, 2002.

         The distribution of this dividend is not necessarily an indication of
whether that the Company will distribute any cash dividends in the future. As of
the date of this report we do not expect to pay future dividends to the holders
of our ordinary shares in the foreseeable future. Instead, we expect to reinvest
any available surplus in our businesses. Future dividends on our ordinary
shares, if any, will be determined by our board of directors.

         ITEM 9. -- THE OFFER AND LISTING

         A. OFFER AND LISTING DETAILS

         Elscint's ordinary shares are listed on the NYSE under the symbol ELT.
The annual high and low sale prices for the ordinary shares for the five most
recent full financial years are:

<TABLE>
<CAPTION>
                     YEAR ENDED DECEMBER 31,      LOW($)               HIGH($)
                     -----------------------      ------               -------
<S>                                               <C>                  <C>
                     2000                         3 13/16              10 1/4
                     2001                         3.51                 5.00
                     2002                         2.95                 6.14
</TABLE>


                                      -69-
<PAGE>
<TABLE>
<S>                                               <C>                  <C>
                     2003                         3.35                 4.9
                     2004                         3.81                 5.54
</TABLE>

         The quarterly high and low sale prices for our ordinary shares during
the two most recent full financial years and the first subsequent quarter were:

<TABLE>
<S>                                               <C>                  <C>
                     2003

                     First Quarter                3.35                 4.19
                     Second Quarter               3.78                 4.41
                     Third Quarter                3.80                 4.30
                     Fourth Quarter               3.80                 4.90


                     2004

                     First Quarter                4.4                  5.54
                     Second Quarter               3.81                 5.14
                     Third Quarter                3.95                 4.99
                     Fourth Quarter               3.88                 4.4

                     2005

                     First Quarter                4.13                 6.99
</TABLE>

         The monthly high and low sale prices for our ordinary shares during the
six months of December 2004 through May 2005 were:

<TABLE>
<CAPTION>
                     MONTH                        LOW($)               HIGH($)
                                                  ------               -------
<S>                                               <C>                  <C>
                     May 2005                     5.35                 5.99
                     April 2005                   5.45                 6.09
                     March 2005                   6.11                 6.65
                     February 2005                4.9                  6.99
                     January 2005                 4.13                 4.89
                     December 2004                3.88                 4.2
</TABLE>

         On May 31, 2005, the closing price of our ordinary shares was $5.99.

         B. PLAN OF DISTRIBUTION

         Not applicable.

         C. MARKETS

         Since our initial public offering on September 1, 1972, our ordinary
shares have been traded on the New York Stock Exchange under the symbol ELT.
Prior to such date, there was no market for our ordinary shares.

         D. SELLING SHAREHOLDERS

         Not applicable.

         E. DILUTION


                                      -70-
<PAGE>
         Not applicable.

         F. EXPENSES OF THE ISSUE

         Not applicable.

         ITEM 10. -- ADDITIONAL INFORMATION

         A. SHARE CAPITAL

         Not applicable.

         B. MEMORANDUM AND ARTICLES OF ASSOCIATION

         PURPOSES AND OBJECTS OF THE COMPANY; CONTRIBUTIONS

         We are a public company registered under the Israeli Companies Law of
1999 (the "Companies Law") as Elscint Limited, registration number 52-002905-9.

         Pursuant to our Memorandum of Association, we were formed with a very
wide range of objectives. These objectives include, among others; To found,
establish and manage companies in order to carry on all kinds of business,
schemes, operations and activities, private as well as public, within the
objects of the Company and to acquire, sell and receive shares, rights and
privileges in such companies or in companies or business managed by them or in
their properties; conducting business as investors and financiers in Israel or
in any other place and to invest money as may be deemed fit from time to time,
issue securities, guarantees and obligations, borrow or raise money and secure
the payment thereof, and carry out various other activities.

         In addition thereto, our Articles of Association authorizes us to make,
from time to time, contributions of reasonable sums for worthy causes even if
such contributions do not fall within the company's business considerations as
referred to in Section 11 of the Israeli Companies Law.

         THE POWERS OF THE DIRECTORS

         The Companies Law requires that certain transactions, actions and
arrangements be approved as provided for in a Company's articles of association
and in certain circumstances by the audit committee by the board of directors
itself and by the shareholders. The vote required by the audit committee and the
board of directors for approval of such matters, in each case, is a majority of
the disinterested directors participating in a duly convened meeting. The
Companies Law requires that a member of the board of directors or senior
management of the company promptly disclose any personal interest that he or she
may have (either directly or by way of any corporation in which he or she is,
directly or indirectly, a 5% or greater shareholder, director or general manager
or in which he or she has the right to appoint at least one director or the
general manager) and all related material information known to him or her, in
connection with any existing or proposed transaction by the company. In
addition, if the transaction is an extraordinary transaction (that is, a
transaction other than in the ordinary course of business, otherwise than on
market terms, or is likely to have a material impact on the company's
profitability, assets or liabilities), the member of the board of directors or
senior management also must disclose any personal interest held by his or her
spouse, siblings, parents, grandparents, descendants, spouse's descendants and
the spouses of any of the foregoing.

         In most circumstances, the Companies Law restricts directors or
officers who have a personal interest in a matter which is considered at a
meeting of the board of directors or the audit committee from being present at
such meeting, participating in the discussions or voting on any such matter.
However, should majority of directors have such a personal interest in a
proposed transaction, then and in such an event, where an independent quorum is
absent, the transaction shall be brought to the approval of the Company's
shareholders.

         In accordance with our articles of association, the directors may, from
time to time, at their discretion, raise or borrow or secure the payment of any
sum or sums of money for the purposes of the Company. The directors may secure
the repayment of such sum or sums in such manner and upon such terms and
conditions in all respects as they


                                      -71-
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think fit, and in particular by the issue of debentures or debenture stock of
the Company charged upon all or any part of the property of the Company (both
present and future) including its uncalled capital for the time being.

         Neither our memorandum or our articles of association, nor the laws of
the State of Israel require retirement or non-retirement of directors at a
certain age, or share ownership for director's qualification, nor do they
contain any restriction on directors' borrowing powers.

         Our articles of association provide that the board of directors may
delegate all of its powers to such committees of the board of directors as it
deems appropriate, subject to the provisions of the Companies Law. See "Item 6.
Directors, Senior Management and Employees - 6C. Board Practices."

         FIDUCIARY DUTY AND DUTY OF CARE OF AN OFFICE HOLDER

         The Companies Law codifies the duties an Office Holder owes to the
company. An "Office Holder" is defined in the Companies Law as a director,
general manager, general business manager, executive vice president, vice
president, any other person assuming the responsibilities of any of the
foregoing positions without regard to such person's title and other managers
directly subordinate to the general manager. The Office Holder's principal
duties to the company are a duty of care and a fiduciary duty to act in good
faith for the Company's benefit as detailed in the Companies Law.

         The Companies Law requires that an Office Holder or a controlling
shareholder of a public company disclose to the Company any personal interest
that he or she may have, including all related material facts or documents in
connection with any existing or proposed transaction by the Company. The
disclosure must be made without delay and no later than the first board of
directors meeting at which the transaction is first discussed.

         APPROVAL OF CERTAIN TRANSACTIONS;

         Under the Companies Law, certain transactions, including those which
qualify as extraordinary (as therein defined), those with interested parties or
directors or officers of the Company, as well as engagement terms of directors,
including insurance, exemption and indemnification and engagement terms of such
director in other positions, require the approval of the audit committee, the
board of directors and in certain circumstances the shareholders of the Company,
by an ordinary or a special majority, as applicable.

         INTERNAL AUDITOR AND CERTIFIED PUBLIC ACCOUNTANT

         The Companies Law requires the board of directors of a public company
to appoint an internal auditor proposed by the audit committee and approved by
the board of directors. A person who does not satisfy certain independence
requirements may not be appointed as an internal auditor. The role of the
internal auditor is to examine, among other things, the compliance of the
company's conduct with applicable law and orderly business procedures. Following
the recommendation of our audit committee, our board of directors appointed, on
March 22, 2004, Josef Greitzer from Greitzer, IE and IA Services. Prior to that
the Company's internal director was Mr. Eli Birnboim, CPA, of the offices of
Rosenblum-Holtzman, CPA. NYSE Listed Company Manual requires each listed company
to have an internal audit function. We are of the opinion that these
requirements do not have merits, materially different to Israeli laws.

         RIGHTS ATTACHED TO SHARES

         Our registered share capital consists of a single class of 24,000,000
ordinary shares, par value NIS 0.05 per share, of which 17,493,143 ordinary
shares were issued and outstanding as of June 20, 2005. All outstanding ordinary
shares are validly issued, fully paid and non-assessable. Such number includes
(i) 576,923 shares held by the Company and considered dormant shares, and do not
confer any rights as long as they are held by us; and (ii) 81,000 shares which
returned to a trustee under an employees and officers incentive plan 2001 - See
Item 6E.

         Dividend rights

         Subject to the rights of persons, if any, entitled to shares with
special rights as to dividend, or whose rights to dividend are limited in any
way, all dividends shall be declared and paid according to the amounts paid or


                                      -72-
<PAGE>
credited as paid on the shares in respect whereof the dividend is paid, but no
amount paid or credited as paid on a share in advance of calls shall be treated
as paid on the share. All dividends shall be apportioned and paid
proportionately to the amounts paid or credited as paid on the shares during any
portion or portions of the period in respect of which the dividend is paid; but
if any share is issued on terms providing that it shall rank for dividend as
from a particular date, such share shall rank for dividend accordingly.

         The board of directors may propose a dividend only out of profits, in
accordance with the provisions of the Companies Law. Declaration of a dividend
requires approval by an ordinary shareholders' resolution, which may decrease,
but not increase, the amount proposed by the board of directors.

         If a year passes after a dividend has been declared and such dividend
remains unclaimed, the board of directors is entitled to invest or utilize the
unclaimed amount of dividend in any manner to the benefit of the Company until
it is claimed. We are not obligated to pay interest on an unclaimed dividend.

         In December 2001, the Company issued 802,500 shares to the Company's
directors, officers and employees, of which 81,000 shares were subsequently
returned to the plan as a result of termination of employment. The recipients'
right to receive these shares vests over two or three years, and voting rights
attach to the shares as they vest. In the event that the Company declares a cash
dividend, the recipients will be entitled to such cash dividend regardless of
whether their right to receive the shares has vested.

         Voting rights

         Holders of ordinary shares have one vote for each ordinary share held
by them on all matters submitted to a vote of the shareholders. Such voting
rights may be affected by the creation of any special rights to the holders of a
class of shares with preferential rights that may be authorized in the future in
the manner provided for under the Companies Law and our articles of association.
The quorum required for an ordinary meeting of shareholders consists of at least
two shareholders present in person or by proxy who hold or represent, in the
aggregate, at least 51% of the issued share capital. In the event that a quorum
is not present within 30 minutes of the scheduled time, the meeting, if convened
at the request of shareholders, shall be dissolved. In any other case, the
shareholders' meeting will be adjourned to the same day of the following week,
at the same time and place, or to such other day, time and place as the board of
directors may determine. At such adjourned meeting the two members present in
person or by proxy who hold or represent, in the aggregate, 26% of our issued
share capital, will constitute a quorum.

         Rights to the Company's profits

         Our shareholders have the rights to share in our profits distributed as
a dividend and any other permitted distribution.

         Rights in the event of liquidation and winding up

         If the Company shall be wound up, whether voluntarily or involuntary,
the liquidators may, with the sanction of the special majority (75%) of
shareholders at the general meeting, divide among the members in specie any part
of the assets of the Company, and may, with the like sanction, vest any part of
the assets of the Company in trustees upon such trusts for the benefit of the
members as the liquidators with the like sanction shall think fit.

         Changing Rights Attached to Shares

         According to our articles of association, in order to change the rights
attached to any class of shares, the consent in writing of the holders of all of
the issued shares of that class must be obtained, or at a special meeting of the
shareholders of that class of shares convened for such purpose adopting a
resolution to change such rights by a special majority of at least 75% of the
votes of shareholders participating and voting at such meeting. The provisions
relating to general meetings shall apply, except that the necessary quorum
required shall be two person holding or representing by proxy at least one third
of the issued shares of that class. In an adjourned meeting, those shareholders
present in person or by proxy shall be deemed to constitute a quorum. The rights
conferred upon the holders of the shares of any class issued with preferred or
other rights shall not, unless expressly provided for by the terms of the shares
of that class, be deemed to be varied by the creation or issue of further shares
ranking pari-passu


                                      -73-
<PAGE>
with that class.

         ANNUAL AND EXTRAORDINARY MEETINGS

         In accordance with the Companies Law, the board of directors must
convene an annual meeting of shareholders at least once every calendar year, and
no later than within fifteen months from the last annual meeting. Notice of at
least 21 days prior to the date of the meeting is required. An extraordinary
meeting may be convened by the board of directors, either at its discretion or
upon a demand of (i) any two directors or 25% of the serving directors; or (ii)
one shareholder or more holding in the aggregate at least 5% of our issued
capital and at least 1% of the company's voting right, or one shareholder or
more holding at least 5% of the voting rights in the company . An extraordinary
meeting must be held not more than 35 days from the publication date of the
announcement of the meeting.

         LIMITATIONS ON THE RIGHTS TO OWN SECURITIES

         Our memorandum and articles of association do not restrict in any way
the ownership of our shares by non-residents of Israel and neither the
memorandum or articles of association nor Israeli law restricts the voting
rights of non-residents of Israel, except that under Israeli law, any transfer
or issue of shares of the Company to a resident of an enemy state of Israel is
prohibited and shall have no effect, unless authorized by the Israeli Minister
of Finance.

         CHANGES IN OUR CAPITAL

         Changes in our capital are subject to the approval of the shareholders
at a general meeting by a special majority of 75% of the votes of shareholders
participating and voting at such meeting.

         ANTI TAKE OVER PROVISIONS

         The Companies Law prohibits the purchase of our shares in the event the
purchaser's holding following such purchase increase above certain percentages
without conducting a tender offer, and all as determined by the Companies Law.

         AMENDMENT OF ARTICLES OF ASSOCIATION

         Any amendment to our Articles requires the approval of our shareholders
by a special majority of 75%.

         C. MATERIAL CONTRACTS

         Most of our operating hotels have appointed Park Plaza as its
management company. Park Plaza owns the franchise to the "Park Plaza" brand name
in the Benelux countries, the United Kingdom, various countries in Eastern
Europe, South Africa and a number of countries in the Middle East. Park Plaza is
responsible for the operation of the hotels, including the supervision of the
local management and staff. Local management is employed by the respective
company owning the hotel and not by Park Plaza, although Park Plaza does render
hiring services.

         Each of our wholly-owned subsidiaries and jointly controlled
subsidiaries owning the Victoria, Utrecht, Astrid, Sherlock Holmes and Victoria
London hotels has entered into a restated management agreement with Park Plaza,
the principal provisions of which include:

         1.       Payment to Park Plaza of an annual incentive fee of 7% of the
                  gross operating profit (as defined in the applicable
                  agreement) of the hotel ("Incentive Fee").

         2.       Payment to Park Plaza of an annual base fee of 2% of the gross
                  hotel room revenues ("Annual Base Fee"), plus reimbursement of
                  advertising expenses, office expenses (at a fixed amount) and
                  other expenses incurred by Park Plaza in carrying out its
                  duties of up to 3% of the aforementioned gross operating
                  profit.


                                      -74-
<PAGE>
         3.       Management agreements valid for an initial fifteen year
                  period, and renewable automatically for an additional period
                  of ten years, subject to the right of either party to
                  terminate the agreement by giving twelve months advance notice
                  (or six months advance notice in the event that the Company
                  decides on early termination of the management agreement). If
                  any of the hotel-owning companies should decide on early
                  termination of the management agreement, then it would be
                  required to pay to Park Plaza an amount equal to the Incentive
                  Fee, the Annual Base Fee and the Franchise Fee (as defined
                  below) for the year immediately preceding the date of that
                  sale. In the event the company holding the Victoria hotel
                  (Amsterdam) sells the hotel or should the control of the hotel
                  be transferred to third party, the Company is also required to
                  pay 2.5% of any gain derived from the sale of the hotel.

         4.       In consideration for monthly royalties of up to 1.5% of the
                  gross hotel-room revenues ("Franchise Fee"), our hotels may
                  use the brand name "Park Plaza", certain Park Plaza
                  trademarks, Park Plaza's international marketing network and
                  international booking center, Park Plaza's marketing and
                  advertising material, Park Plaza's international hotel
                  conferences, Park Plaza's assistance in planning, developing
                  and applying its methods with respect to the hotels, training
                  of staff and senior management of the hotels, and inclusion in
                  the list of Park Plaza hotels worldwide. Elscint designs and
                  refurbishes its hotels in order to comply with Park Plaza's
                  operational standards.

         5.       No formal agreement has been signed as of May 31, 2004 with
                  Park Plaza in respect of the management of the Sandton hotel
                  in South Africa, although Park Plaza manages the hotel on a de
                  facto basis on the same terms and conditions as the remaining
                  operational hotels.

         6.       The management agreement with Park Plaza in respect of the
                  Shaw Park Plaza hotel in London has been terminated by mutual
                  agreement following the long term lease of the property to an
                  unrelated third party (See Item 4 - "Information on the
                  Company - Recent Developments"). In addition, a consulting
                  agreement previously entered into with Park Plaza pertaining
                  to the operation of the Bucuresti hotel in Bucharest, Romania,
                  has also been expired in the year ended December 31, 2002.
                  (See "Information on the Company - Recent Developments")

         7.       On terms substantially similar to the foregoing, a management
                  agreement was signed with Park Plaza in respect of the
                  Riverbank hotel on January 1, 2004.

         For information regarding the Asset Purchase and Sale Agreement dated
November 13, 2002 by and among Elscint Ltd., Sanmina - Sci Corporation and
Sanmina-Sci Israel Medical Systems Ltd. for the sale of the Company's factory in
Ma'alot, see "Item 4 - Information on the Company - Overview and Strategy."

         For information regarding the Lease Agreement dated January 6, 2003
between Euston Road Hotel Limited and Accor SA for a long term lease of the
hotel property located on Euston Road in London, England (previously Bernard
Shaw Park Plaza) for a period of 25 years, see "Item 4 - Information on the
Company ___."

         For information regarding the Agreement between CDPM and SLS for the
completion of the work at the Arena, see "Item 7 - Related Party Transactions."

         For information regarding the management agreements with the Rezidor
Group regarding the future management of the "Ballet Institute" (which will be
operated under the "Regent" trade name) and the Bucuresti Hotel in Bucharest
(which will be operated under the "Radisson SAS" trade name), see "Item 4 -
Recent Developments.

         D. EXCHANGE CONTROLS

         In 1998, the government of Israel promulgated a general permit under
the Israeli Currency Control Law. Pursuant to such general permit substantially
all transactions in foreign currency are permitted.

         Our memorandum and articles of association do not restrict in any way
the ownership of the shares by non-residents and neither the memorandum of
association nor Israeli law restricts the voting rights of non-residents.

         E. TAXATION


                                      -75-
<PAGE>
         Following is a discussion of certain tax laws that may be material to
our shareholders, all as in effect as of the date of this report and all of
which is subject to changes, possibly on a retroactive basis, to the extent that
such laws are still subject to judicial or administrative interpretation in the
future. This discussion is not intended, and should not be construed, as legal
or professional tax advice and does not cover all possible tax considerations.

         WE ENCOURAGE EACH INVESTOR TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES, INCLUDING THE EFFECTS OF
APPLICABLE ISRAELI, U.S. FEDERAL, STATE, AND LOCAL, AND FOREIGN TAX LAWS AND
POSSIBLE CHANGES IN SUCH TAX LAWS.

         TAXATION IN ISRAEL

In general, corporate tax rate applicable to companies in Israel in 2004 is 35%
which will gradually decrease in the coming years to a 30% tax rate in 2007 and
thereafter.

         TAXATION UNDER INFLATIONARY CONDITIONS

         The Income Tax Law (Inflationary Adjustments) (1985), or the
Inflationary Adjustments Law, affects the taxation of earnings of Israeli
companies. This statute attempts to overcome some of the problems presented to a
traditional tax system by an economy undergoing rapid inflation, which was the
case in Israel at the time the law was enacted. Israel's inflation rate has been
materially reduced in recent years. The Inflationary Adjustments Law is
characterized by a high degree of complexity. Its main features can be described
generally as follows:

          (a) A special tax adjustment for the preservation of equity whereby
certain corporate assets are classified broadly into Fixed (inflation resistant)
Assets and Non-Fixed (soft) Assets. Where a company's equity, as defined in the
law, exceeds the depreciated cost of Fixed Assets, a deduction from taxable
income that takes into account the effect of the applicable annual rate of
inflation on the excess is allowed, up to a ceiling of 70% of taxable income in
any single tax year, with the unused portion permitted to be carried forward on
a linked basis. If the depreciated cost of Fixed Assets exceeds a company's
equity, then the excess multiplied by the applicable annual rate of inflation is
added to taxable income.

         (b) Subject to certain limitations, depreciation deductions on Fixed
Assets and losses carried forward are adjusted for inflation based on the
increase in the consumer price index.

         (c) Gains on the sale of certain traded securities are taxable in
certain circumstances, subject to detailed rules which were modified as of
January 1, 1999. Today, all Israeli companies, except certain companies which
are wholly owned by individuals, are subject to reporting and taxation
requirements under this law. Dealers in securities are subject to the regular
tax rules applicable to business income in Israel.

         REFORM OF TAXES ON INCOME IN ISRAEL

         As of January 1, 2003, statutory provisions came into force,
concerning, among other things, tax reform in Israel, in connection with:

                  (1) (i)  Taxation of profits of foreign resident companies
                           regarded as Controlled Foreign Companies ("CFC"), if:
                           (i) its shares or its rights on it are not listed in
                           a stock exchange, however if they are partly listed,
                           then less than 30% of the shares or of the rights of
                           the company were offered to the public(ii) most of
                           their revenues are passive, as defined by law, or
                           most of their profits derive from passive revenues,
                           (iii) the tax rate applying to their passive profits
                           in their country of residence does not exceed 20%,
                           and (iv) over 50% of the means of control in them are
                           held, directly or indirectly, by Israeli residents or
                           more than 40% of one of its means of control are held
                           by Israeli residents, who together with a relative of
                           one of them hold more than 50% of one or more of its
                           means of control, or an Israeli resident has the
                           right to prevent adoption of substantive management
                           decisions in it. In accordance with the statutory
                           provisions, a controlling shareholder, which is an
                           Israeli resident holds more than 10% in the company's
                           means of control, in


                                      -76-
<PAGE>
                           such companies that have unpaid profits, as defined
                           by law, will be deemed to have received his relative
                           proportion in these profits as a dividend
                           (hereinafter: "deemed dividend").

                      (ii) Taxation of a dividend received in Israel,
                           originating in profits generated or accrued outside
                           Israel, as well as a dividend originating outside
                           Israel.

                           A deemed dividend and/or the distribution of
                           dividends, as stated, will be subject to a tax rate
                           of 25%, or, upon election by the company and provided
                           certain conditions are met, the income from which the
                           dividend was distributed may be subject to tax at the
                           corporate tax rate (for instance, 34% in 2004) less
                           taxes paid abroad in respect of these profits
                           (including under certain circumstances taxes paid by
                           a company held by the distributing company) , as the
                           case may be.

                  (2)      Taxation of an Israeli resident's profits accrued or
                           generated outside Israel (until the end of 2002,
                           Israeli residents were taxed on such profits only if
                           received in Israel).

                  (3)      Taxation of capital gains from the realization of
                           assets at a reduced rate of 25%. The reduced rate
                           will apply to realization of assets commencing
                           January 1, 2003 and onwards, and will be calculated
                           for the part of the profits relating to the period
                           subsequent to this date up to the realization date.

                  (4)      Guidance on the ability to offset losses - regarding
                           business losses, capital losses, passive losses and
                           CFC losses.

                  (5)      Imposition of capital gains tax on capital gains
                           realized by individuals as of January 1, 2003, from
                           the sale of shares of publicly traded companies (such
                           gain was previously exempt from capital gains tax in
                           Israel). For information with respect to the
                           applicability of Israeli capital gains taxes on the
                           sale of ordinary shares, see "Capital Gains Tax on
                           Sales of Our Ordinary Shares" below;

                  (6)      Introduction of a new regime for the taxation of
                           shares and options issued to employees and officers
                           (including directors);

         CAPITAL GAINS TAX ON SALES OF OUR ORDINARY SHARES

         Israeli law generally imposes a capital gains tax on the sale of
capital assets located in Israel, including shares in Israeli companies, by both
residents and non-residents of Israel, unless a specific exemption is available
or unless a double tax convention concluded between Israel and the shareholder's
country of residence provides otherwise. The law distinguishes between real gain
and inflationary surplus. The inflationary surplus is equal to the increase in
the purchase price of the relevant asset attributable solely to the increase in
the Israeli consumer price index between the date of purchase and the date of
sale. The real gain is the excess of the total capital gain over the
inflationary surplus.

         Prior to the tax reform, sales of our ordinary shares by individuals
were generally exempt from Israeli capital gains tax so long as (i) our ordinary
shares were quoted on Nasdaq or listed on a stock exchange in a country
appearing on a list approved by the Controller of Foreign Currency and (ii) we
qualified as an Industrial Company.

         Pursuant to the tax reform, generally, capital gains tax is imposed at
a rate of 15% on real gains derived on or after January 1, 2003, from the sale
of shares in companies (i) publicly traded on the Tel Aviv Stock Exchange
("TASE") or; (ii) (subject to a necessary determination by the Israeli Minister
of Finance) Israeli companies publicly traded on a recognized stock exchange or
regulated market outside of Israel. This tax rate is contingent upon the
shareholder not claiming a deduction for financing expenses and does not apply
to: (i) dealers in securities; (ii) shareholders that report in accordance with
the Inflationary Adjustment Law; or (iii) shareholders who acquired their shares
prior to an initial public offering (that are subject to a different tax
arrangement). The tax basis of shares acquired prior to January 1, 2003 will be
determined in accordance with the average closing share price in the three
trading days preceding January 1, 2003. However, a request may be made to the
tax authorities to consider the actual


                                      -77-
<PAGE>
adjusted cost of the shares as the tax basis if it is higher than such average
price (however, if a calculation based on the latter request, in converse to the
first calculation, constitutes a loss, this loss cannot be offset against future
profit).

         Non-Israeli residents are exempt from Israeli capital gains tax on any
gains derived from the sale of shares publicly traded on the TASE, and are
exempt from Israeli capital gains tax on any gains derived from the sale of
shares of Israeli companies publicly traded on a recognized stock exchange
outside of Israel, provided such shareholders did not acquire their shares prior
to an initial public offering. However, non-Israeli corporations will not be
entitled to such exemption if an Israeli resident (i) has a controlling interest
of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is
entitled to 25% or more of the revenues or profits of such non-Israeli
corporation, whether directly or indirectly.

         In any event, the provisions of the tax reform shall not affect the
exemption from capital gains tax for gains accrued before January 1, 2003, as
described above.

         In some instances where our shareholders may be liable to Israeli tax
on the sale of their ordinary shares, the payment of the consideration may be
subject to the withholding of Israeli tax at the source.

         U.S.-ISRAEL TAX TREATY

         Pursuant to the Convention between the Government of the United States
of America and the Government of Israel with Respect to Taxes on Income, as
amended (the "the U.S.- Israel Tax Treaty"), the sale, exchange or disposition
of ordinary shares by a person who (i) holds the ordinary shares as a capital
asset, (ii) qualifies as a resident of the United States within the meaning of
the U.S.-Israel Tax Treaty and (iii) is entitled to claim the benefits afforded
to such resident by the U.S.-Israel Tax Treaty generally will not be subject to
Israeli capital gains tax unless either such resident holds, directly or
indirectly, shares representing 10% or more of the voting power of a company
during any part of the 12-month period preceding such sale, exchange or
disposition, subject to certain conditions, or the capital gains from such sale,
exchange or disposition can be allocated to a permanent establishment in Israel.
In the event that the exemption shall not be available, the sale, exchange or
disposition of ordinary shares would be subject to such Israeli capital gains
tax to the extent applicable; however, under the U.S.-Israel Tax Treaty, such
residents would be permitted to claim a credit for such taxes against U.S.
federal income tax imposed with respect to such sale, exchange or disposition,
subject to the limitations in U.S. laws applicable to foreign tax credits. The
U.S.-Israel Tax Treaty does not relate to state or local taxes.

         TAXATION OF NON-RESIDENTS

         Non-residents of Israel are subject to income tax on income accrued or
derived from sources in Israel. Such sources of income include passive income
such as dividends, royalties and interest, as well as non-passive income from
services rendered in Israel. On distributions of dividends other than bonus
shares or stock dividends, income tax at the rate of 25% is withheld at source,
unless a reduced rate is provided in double tax convention concluded between
Israel and the shareholder's country of residence. Under the U.S.-Israel Tax
Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is
a U.S. resident will be 25%; provided, however, that under the Encouragement of
Capital Investments, 1959, as amended (the "Investment Law"), dividends
generated by an Approved Enterprise are taxed at the rate of 15%. Furthermore,
dividends not generated by an Approved Enterprise paid to a U.S. company holding
10% or more of our ordinary shares in the 12 month period preceding the
distribution of such dividends, are taxed at a rate of 12.5%.

         Under an amendment to the Inflationary Adjustments Law, non-Israeli
corporations may be subject to Israeli taxes on the sale of securities of an
Israeli company, subject to the provisions of any applicable taxation treaty or
unless a specific exemption is available.

         FOREIGN EXCHANGE REGULATIONS

         Dividends (if any) paid to the holders of our ordinary shares, any
amounts payable upon our dissolution, liquidation or winding up, and as the
proceeds of any sale of our ordinary shares in Israel may be paid in non-Israeli
currency or, if paid in Israeli currency, may be converted into freely
repatriable dollars at the rate of exchange prevailing at the time of
conversion.

                                      -78-
<PAGE>

         TAXATION OF DIVIDENDS DISTRIBUTIONS

          On distributions of dividends to Israeli individuals, income tax at
the rate of 25% is withheld while a distributions to an Israeli companies is
tax-exempt. Dividend distributions from Approved Enterprises earnings is subject
to 15% tax withheld at source to both Israeli individuals and Israeli companies,
if the dividend is distributed during the tax exemption period or within a
specified period. In addition a company that distributed dividends out of income
that was tax exempt according to the Investment Law would be subject to company
tax in the year the dividend is distributed in respect of the amount distributed
at the rate that would have been applicable had the company not elected the
tax-exempt course (generally 25%).

         U.S. FEDERAL INCOME TAX CONSIDERATIONS

         Subject to the limitations described herein, this discussion summarizes
the material U.S. federal income tax consequences of the purchase, ownership and
disposition of our ordinary shares to a U.S. holder. A U.S. holder is a holder
of our ordinary shares who is:

         -        an individual citizen or resident of the U.S. for U.S. federal
                  income tax purposes;

         -        a corporation or partnership (or another entity taxable as a
                  corporation or partnership for U.S. federal income tax
                  purposes) created or organized under the laws of the United
                  States or any political subdivision thereof;

         -        an estate, the income of which may be included in the gross
                  income for U.S. federal income tax purposes regardless of its
                  source; or

         -        a trust (i) if, in general, a U.S. court is able to exercise
                  primary supervision over its administration and one or more
                  U.S. persons have the authority to control all of its
                  substantial decisions or (ii) that has in effect a valid
                  election under applicable U.S. Treasury regulations to be
                  treated as a U.S. person.

         Unless otherwise specifically indicated, this discussion does not
consider the U.S. tax consequences to a person that is not a U.S. holder and
considers only U.S. holders that will own the ordinary shares as capital assets.

         This discussion is based on current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), current and proposed Treasury regulations
promulgated under the Code and administrative and judicial interpretations of
the Code, all as currently in effect and all of which are subject to change,
possibly with a retroactive effect. This discussion does not address all aspects
of U.S. federal income taxation that may be relevant to any particular U.S.
holder based on the U.S. holder's particular circumstances. In particular, this
discussion does not address the U.S. federal income tax consequences to U.S.
holders who are broker-dealers or who own, directly, indirectly or
constructively, 10% or more of our outstanding voting shares, U.S. holders
holding the ordinary shares as part of a hedging, straddle or conversion
transaction, U.S. holders whose functional currency is not the U.S. dollar,
insurance companies, tax-exempt organizations, financial institutions and
persons subject to the alternative minimum tax, who may be subject to special
rules not discussed below. Additionally, the tax treatment of persons who are,
or hold the ordinary shares through, a partnership or other pass-through entity
is not considered, nor is the possible application of U.S. federal estate or
gift taxes or any aspect of state, local or non-U.S. tax laws.

         EACH HOLDER OF OUR ORDINARY SHARES IS ADVISED TO CONSULT HIS OR HER TAX
ADVISOR WITH RESPECT TO THE SPECIFIC U.S. FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES TO HIM OR HER OF PURCHASING, HOLDING OR DISPOSING OF OUR
ORDINARY SHARES.

         TAXATION OF DISTRIBUTIONS ON ORDINARY SHARES

         Subject to the discussion below under "Tax Consequences if We are a
Passive Foreign Investment Company," a distribution paid by us with respect to
the ordinary shares to a U.S. holder will be treated as dividend income to the
extent that the distribution does not exceed our current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes. The
amount of a distribution with respect to the ordinary shares will equal the
amount of cash and the fair market value of any property distributed and will
also include the amount


                                      -79-
<PAGE>
of any Israeli taxes withheld as described above under "Taxation of
Non-Residents." Dividends that are received by U.S. holders that are
individuals, estates or trusts will be taxed at the rate applicable to long-term
capital gains (a maximum rate of 15%), provided that such dividends meet the
requirements of "qualified dividend income." Dividends that fail to meet such
requirements, and dividends received by corporate U.S. holders are taxed at
ordinary income rates. No dividend received by a U.S. holder will be a qualified
dividend (1) if the U.S. holder held the ordinary share with respect to which
the dividend was paid for less than 61 days during the 121-day period beginning
on the date that is 60 days before the ex-dividend date with respect to such
dividend, excluding for this purpose, under the rules of Code section 246(c),
any period during which the U.S. holder has an option to sell, is under a
contractual obligation to sell, has made and not closed a short sale of, is the
grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with respect
to, such ordinary share (or substantially identical securities); or (2) to the
extent that the U.S. holder is under an obligation (pursuant to a short sale or
otherwise) to make related payments with respect to positions in property
substantially similar or related to the ordinary share with respect to which the
dividend is paid. If we were to be a "passive foreign investment company," (as
such terms is defined in the Code) for any year, dividends paid on our ordinary
shares in such year or in the following year would not be qualified dividends.
In addition, a non-corporate U.S. holder will be able to take a qualified
dividend into account in determining its deductible investment interest (which
is generally limited to its net investment income) only if it elects to do so;
in such case the dividend will be taxed at ordinary income rates.

         The amount of any distribution which exceeds the amount treated as a
dividend will be treated first as a non-taxable return of capital, reducing the
U.S. holder's tax basis in its ordinary shares to the extent thereof, and then
as capital gain from the deemed disposition of the ordinary shares. Corporate
holders will not be allowed a deduction for dividends received in respect of the
ordinary shares.

         Dividends paid by us in NIS will be included in the income of U.S.
holders at the dollar amount of the dividend (including any Israeli taxes
withheld therefrom), based upon the spot rate of exchange in effect on the date
the distribution is included in income. U.S. holders will have a tax basis in
the NIS for U.S. federal income tax purposes equal to that dollar value. Any
subsequent gain or loss in respect of the NIS arising from exchange rate
fluctuations will generally be taxable as U.S. source ordinary income or loss.

         Subject to the limitations set forth in the Code and the Treasury
regulations thereunder, U.S. holders may elect to claim as a foreign tax credit
against their U.S. federal income tax liability the Israeli income tax withheld
from dividends received in respect of the ordinary shares. The limitations on
claiming a foreign tax credit include, among others, computation rules under
which foreign tax credits allowable with respect to specific classes of income
cannot exceed the U.S. federal income taxes otherwise payable with respect to
each such class of income. In this regard, dividends paid by us will be foreign
source "passive income" for U.S. foreign tax credit purposes or, in the case of
a financial services entity, "financial services income"(and, for tax years
beginning after December 31, 2006, as "general category income"). U.S. holders
that do not elect to claim a foreign tax credit may instead claim a deduction
for the Israeli income tax withheld if they itemize deductions. The rules
relating to foreign tax credits are complex, and you should consult your tax
advisor to determine whether and to what extent you would be entitled to this
credit. A U.S. holder will be denied a foreign tax credit for Israeli income tax
withheld from a dividend received on the ordinary shares (i) if the U.S. holder
has not held the ordinary shares for at least 16 days of the 30-day period
beginning on the date which is 15 days before the ex-dividend date with respect
to such dividend or (ii) to the extent the U.S. holder is under an obligation to
make related payments with respect to positions in substantially similar or
related property. Any days during which a U.S. holder has substantially
diminished its risk of loss on the ordinary shares are not counted toward
meeting the required 16-day holding period. Distributions of current or
accumulated earnings and profits will be foreign source passive income for U.S.
foreign tax credit purposes.

         TAXATION OF THE DISPOSITION OF ORDINARY SHARES

         Subject to the discussion below under "Tax Consequences if We are a
Passive Foreign Investment Company," upon the sale, exchange or other
disposition of our ordinary shares, a U.S. holder will recognize capital gain or
loss in an amount equal to the difference between the amount realized on the
disposition and the U.S. holder's tax basis in the ordinary shares. The gain or
loss recognized on the disposition of the ordinary shares will be long-term
capital gain or loss if the U.S. holder held the ordinary shares for more than
one year at the time of the disposition and is eligible for a maximum 15% rate
of taxation for individuals. Capital gain from the sale, exchange or other
disposition of ordinary shares held for one year or less is short-term capital
gain and taxed as ordinary income at a maximum rate of 35%. Gain or loss
recognized by a U.S. holder on a sale, exchange or other disposition


                                      -80-
<PAGE>
of ordinary shares will be treated as U.S. source income or loss for U.S.
foreign tax credit purposes.

         A U.S. holder that uses the cash method of accounting calculates the
dollar value of the proceeds received on the sale as of the date that the sale
settles. However, a U.S. holder that uses the accrual method of accounting is
required to calculate the value of the proceeds of the sale as of the trade date
and may therefore realize foreign currency gain or loss. A U.S. holder may avoid
realizing foreign currency gain or loss by electing to use the settlement date
to determine the proceeds of sale for purposes of calculating the foreign
currency gain or loss. In addition, a U.S. holder that receives foreign currency
upon disposition of ordinary shares and converts the foreign currency into
dollars after the settlement date or trade date (whichever date the U.S. holder
is required to use to calculate the value of the proceeds of sale) will have
foreign exchange gain or loss based on any appreciation or depreciation in the
value of the foreign currency against the dollar, which will generally be U.S.
source ordinary income or loss.

         TAX CONSEQUENCES IF WE ARE A PASSIVE FOREIGN INVESTMENT COMPANY

         We will be a passive foreign investment company, or PFIC, if either (1)
75% or more of our gross income in a taxable year is passive income; or (2) 50%
or more of the value, determined on the basis of a quarterly average, of our
assets in a taxable year are held for the production of passive income. If we
own (directly or indirectly) at least 25% by value of the stock of another
corporation, we will be treated for purposes of the foregoing tests as owning
our proportionate share of the other corporation's assets and as directly
earning our proportionate share of the other corporation's income. If we are a
PFIC, a U.S. holder must determine under which of three alternative taxing
regimes it wishes to be taxed:

         The "QEF" regime applies if the U.S. holder elects to treat us as a
"qualified electing fund" ("QEF") for the first taxable year in which the U.S.
holder owns our ordinary shares or in which we are a PFIC, whichever is later,
and if we comply with certain reporting requirements. If the QEF regime applies,
then each year that we are a PFIC such U.S. holder will include in its gross
income a proportionate share of the our ordinary earnings (which is taxed as
ordinary income) and net capital gain (which is taxed as long-term capital
gain), subject to a separate election to defer payment of taxes, which deferral
is subject to an interest charge. These amounts would be included in income by
an electing U.S. holder for its taxable year in which our taxable year ends,
whether or not such amounts are actually distributed to the U.S. holder. A U.S.
holder's basis in our ordinary shares for which a QEF election has been made
would be increased to reflect the amount of any taxed but undistributed income.
Generally, a QEF election allows an electing U.S. holder to treat any gain
realized on the disposition of his ordinary shares as capital gain.

         Once made, the QEF election applies to all subsequent taxable years of
the U.S. holder in which it holds our ordinary shares and for which we are a
PFIC and can be revoked only with the consent of the Internal Revenue Service. A
shareholder makes a QEF election by attaching a completed Internal Revenue
Service Form 8621, including the PFIC annual information statement, to a timely
filed United States federal income tax return. Even if a QEF election is not
made, a U.S. person who is a shareholder in a PFIC must file a completed
Internal Revenue Service Form 8621 every year.

         If a QEF election is made after the first taxable year in which a U.S.
holder holds our ordinary shares and we are a PFIC, then special rules would
apply.

         A second regime, the "mark-to-market" regime, may be elected so long as
our ordinary shares are publicly traded. Pursuant to this regime, an electing
U.S. holder's ordinary shares are marked-to-market each year and the U.S. holder
recognizes as ordinary income or loss an amount equal to the difference as of
the close of the taxable year between the fair market value of our ordinary
shares and the U.S. holder's adjusted tax basis in our ordinary shares. Losses
are allowed only to the extent of net mark-to-market gain previously included by
the U.S. holder under the election for prior taxable years. An electing U.S.
holder's adjusted basis in our ordinary shares is increased by income recognized
under the mark-to-market election and decreased by the deductions allowed under
the election.

         Under the mark-to-market election, gain on the sale of our ordinary
shares is treated as ordinary income, and loss on the sale of our ordinary
shares, to the extent the amount of loss does not exceed the net mark-to-market
gain previously included, is treated as ordinary loss. The mark-to-market
election applies to the tax year for which


                                      -81-
<PAGE>
the election is made and all later tax years, unless the ordinary shares cease
to be marketable or the Internal Revenue Service consents to the revocation of
the election.

         If the mark-to-market election is made after the first taxable year in
which a U.S. holder holds our ordinary shares and we are a PFIC, then special
rules would apply.

         A U.S. holder making neither the QEF election nor the mark-to-market
election is subject to the "excess distribution" regime. Under this regime,
"excess distributions" are subject to special tax rules. An excess distribution
is either (1) a distribution with respect to shares that is greater than 125% of
the average distributions received by the U.S. holder from us over the shorter
of either the preceding three years or such U.S. holder's holding period for our
shares, or (2) 100% of the gain from the disposition of our shares (including
gain deemed recognized if the ordinary shares are used as security for a loan).

         Excess distributions must be allocated ratably to each day that a U.S.
holder has held our ordinary shares. A U.S. holder must include amounts
allocated to the current taxable year, as well as amounts allocated to taxable
years prior to the first year in which we were a PFIC, in its gross income as
ordinary income for that year. All amounts allocated to prior years of the U.S.
holder during which we were a PFIC would be taxed at the highest tax rate for
each such prior year applicable to ordinary income. The U.S. holder also would
be liable for interest on the deferred tax liability for each such prior year
calculated as if such liability had been due with respect to each such prior
year. A U.S. holder that is an individual is not allowed a deduction for
interest on the deferred tax liability. The portions of gains and distributions
that are not characterized as "excess distributions" are subject to tax in the
current year under the normal tax rules of the Code.

         A U.S. person who inherits shares in a foreign corporation that was a
PFIC in the hands of the decedent (who was not a nonresident alien and did not
make either of the elections described above), is denied the otherwise available
step-up in the tax basis of such shares to fair market value at the date of
death. The U.S. person steps into the shoes of the decedent and will be subject
to the rules described above.

         We believe that in 2004 we were not a PFIC. However, since the
determination of whether we are a PFIC is based upon such factual matters as the
valuation of our assets and, in certain cases, the assets of companies held by
us, there can be no assurance with respect to the position of the Internal
Revenue Service on our status as a PFIC. In addition, there can be no assurance
that we will not become a PFIC for the current fiscal year ending December 31,
2005 or in a future year. We will notify U.S. holders in the event we conclude
that we will be treated as a PFIC for any taxable year to enable U.S. holders to
consider whether or not to elect to treat us as a QEF for U.S. federal income
tax purposes or to "mark to market" the ordinary shares or to become subject to
the "excess distribution" regime.

         U.S. holders are urged to consult their tax advisors regarding the
application of the PFIC rules, including eligibility for and the manner and
advisability of making, the QEF election or the mark-to-market election.

         INFORMATION REPORTING AND BACKUP WITHHOLDING

         A U.S. holder generally is subject to information reporting and may be
subject to backup withholding at a rate of up to 28% with respect to dividend
payments and receipt of the proceeds from the disposition of the ordinary
shares. Backup withholding will not apply with respect to payments made to
exempt recipients, including corporations and tax-exempt organizations, or if a
U.S. holder provides a correct taxpayer identification number (or certifies that
he has applied for a taxpayer identification number), certifies that such holder
is not subject to backup withholding or otherwise establishes an exemption.
Backup withholding is not an additional tax and may be claimed as a credit
against the U.S. federal income tax liability of a U.S. holder, or
alternatively, the U.S. holder may be eligible for a refund of any excess
amounts withheld under the backup withholding rules, in either case, provided
that the required information is furnished to the Internal Revenue Service.

         NON-U.S. HOLDERS OF ORDINARY SHARES

         Except as provided below, a non-U.S. holder of ordinary shares (except
certain former U.S. citizens and long-term residents of the United States) will
not be subject to U.S. federal income or withholding tax on the receipt of
dividends on, and the proceeds from the disposition of, an ordinary share,
unless that item is effectively connected


                                      -82-
<PAGE>
with the conduct by the non-U.S. holder of a trade or business in the United
States and, in the case of a resident of a country which has an income tax
treaty with the United States, that item is attributable to a permanent
establishment in the United States or, in the case of an individual, a fixed
place of business in the United States. In addition, gain recognized by an
individual non-U.S. holder will be subject to tax in the United States if the
non-U.S. holder is present in the United States for 183 days or more in the
taxable year of the sale and other conditions are met.

         Non-U.S. holders will not be subject to information reporting or backup
withholding with respect to the payment of dividends on ordinary shares unless
the payment is made through a paying agent, or an office of a paying agent, in
the United States. Non-U.S. holders will be subject to information reporting and
backup withholding at a rate of up to 28% with respect to the payment within the
United States of dividends on the ordinary shares unless the holder provides its
taxpayer identification number, certifies to its foreign status, or otherwise
establishes an exemption.

         Non-U.S. holders will be subject to information reporting and backup
withholding at a rate of up to 28% on the receipt of the proceeds from the
disposition of the ordinary shares to, or through, the United States office of a
broker, whether domestic or foreign, unless the holder provides a taxpayer
identification number, certifies to its foreign status or otherwise establishes
an exemption. Non-U.S. holders will not be subject to information reporting or
backup withholding with respect to the receipt of proceeds from the disposition
of the ordinary shares by a foreign office of a broker; provided, however, that
if the broker is a U.S. person or a "U.S. related person," information reporting
(but not backup withholding) will apply unless the broker has documentary
evidence in its records of the non-U.S. holder's foreign status or the non-U.S.
holder certifies to its foreign status under penalties of perjury or otherwise
establishes an exemption. For this purpose, a "U.S. related person" is a broker
or other intermediary that maintains one or more enumerated U.S. relationships.
Backup withholding is not an additional tax and may be claimed as a credit
against the U.S. federal income tax liability of a non-U.S. holder, or
alternatively, the non-U.S. holder may be eligible for a refund of any excess
amounts withheld under the backup withholding rules, in either case, provided
that the required information is furnished to the Internal Revenue Service.

         F. DIVIDENDS AND PAYING AGENTS

         Not applicable.

         G. STATEMENTS BY EXPERTS

         Not applicable.

         H. DOCUMENTS ON DISPLAY

         Elscint is subject to the informational requirements of the 1934 Act.
In accordance with these requirements, Elscint files reports and other
information with the SEC. These materials, including this Annual Report and the
exhibits hereto, may be inspected and copied at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, D.C. 20549 and at the SEC's regional office
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the
materials may be obtained from the Public Reference Room of the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549 at prescribed rates. The public may obtain
information on the operation of the SEC's Public Reference Room by calling the
SEC in the United States at 1-800-SEC-0330. In addition, material filed by
Elscint can be inspected at the offices of the NYSE at 20 Broad Street, New
York, New York 10005.

         I. SUBSIDIARY INFORMATION

         Not applicable.

         ITEM 11. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                  Elscint on a consolidated basis analysis, in its normal course
of business, is exposed to the following market risks:


                                      -83-
<PAGE>
         1. EXCHANGE RATE EXPOSURE

(a)      Operations:

         The main transactions and balances (including long-term bank loans) of
         companies in our hotel division, which are measured as autonomous
         entities, are denominated or linked to the functional currency of each
         company. As of December 31, 2004 and for the year then ended, our hotel
         division did not have any significant exchange rate exposure, except
         for the hotel operations in Romania.

         Significant changes in the exchange rate between certain currencies in
         a given territory (mainly, Euro, GBP, Lei and dollar) is likely affect
         the respective prices of hotel services in our hotel division, for
         overseas customers. Such changes may result in a gap between price
         levels of services paid in different countries. As a result, the
         revenue might decrease and the revenues mix between geographic segments
         may also vary as a result of these currency fluctuations.

(b)      Monetary assets (liabilities), net:

         The functional currency of our holding companies in Israel, is the NIS
         while the same of our holding subsidiaries which operate in the
         Netherlands - is the Euro. We have monetary assets and monetary
         liabilities in substantial amounts, denominated in or linked to the
         U.S. dollar, and are therefore exposed to a substantial fluctuations
         thereof. We do not actively hedge against fluctuations of the NIS
         and/or the Euro in relation to the U.S. dollar.

(c)      Net investment value of foreign investees:

         As for the translation method of our foreign autonomous entities to
         their holding Company's functional currency and the changes therein
         during 2004 - see Note 2A.(3)(i) to our financial statements.

         Our exposure to fluctuations in exchange rates of foreign currencies,
         in respect of inter-company balances (see table I below), is reflected
         only by the value of the net investment in the autonomous entities
         (capital and shareholders' loans with a nature of investments). A
         decrease/increase in the value of foreign currencies of the autonomous
         investees in relation to their holding companies' functional currency,
         may therefore have a negative/ positive impact on our shareholders'
         equity. In order to mitigate our exposure to the effect of frequent
         fluctuations in the exchange rate of these currencies, as mentioned
         above, some of our bank loans that have been obtained, mainly to
         finance investments in foreign subsidiaries in our hotels division, in
         the same currency of the investee's functional currency.

In addition, our exposure to the foregoing fluctuations has an impact on the
extent of the assets, liabilities and operations of the autonomous companies, as
reflected in our financial statements, and on the date-to-date and
period-to-period comparison of our financial statements.

Further details about our foreign currency exposure, as of December 31, 2004 -
are set forth in Table I below.

2.       RATE OF INFLATION

         As for the accounting principle regarding the adjustment of financial
         statements to the inflation and for the changes therein, commencing
         January 1, 2004 - see Note 2A.1. to our financial statements.

                  Fluctuations in the rate of inflation may impact labor costs
                  in circumstances where labor contracts are linked to domestic
                  CPI, whether by mandatory rules or by union agreements. An
                  increase in inflation could also result in an increase in the
                  cost of our variable rate borrowings. Failure to adjust
                  revenues of companies (especially in the hotel division) with
                  the rate of inflation may result in a decrease in operating
                  profits. This potential loss will be more clearly reflected as
                  we had changed, commencing January 2004, our reporting method
                  to the nominal basis (instead of adjusted basis). However,
                  most of our leases, in the Arena, contain provisions designed
                  to partially


                                      -84-
<PAGE>
                  mitigate the adverse impact of inflation. Most of our leases
                  contain effective annual rent escalations (that are, indexed
                  based on the Consumer Price Index). A portion of the lease
                  agreements include conditions enabling us to receive
                  percentage rents based on a tenant's gross sales above
                  predetermined levels, which sales generally increase as prices
                  rise. Accordingly, we do not believe that our earnings or cash
                  flows from real estate operations (the Arena businesses) are
                  subject to a significant economic risk of inflation (see also
                  8 below).

3.       INTEREST RATE RISKS

         Part of the credit and the deposits are obtained at or invested at
         fixed interest rates while most of the credit and deposits are obtained
         at or invested at variable rates (see Table III below). Changes in
         short term interest rates in the countries in which we operate will
         affect our results of operations and our future cash flows. In general,
         we do not actively hedge against the impact of the interest rate risks
         on our net monetary assets/liabilities. We limit, in certain cases, a
         part of these risks by using derivative financial instruments to manage
         or hedge interest rate risk, especially, on long term bank loans (see
         Note 22A. to our financial statements).

         We are also subject to the risk of increases in long-term variable
         interest rates that may occur over a period of several years. This may
         affect our discount rate applicable to our assets and consequently may
         decrease the overall value of our real estate.

         Short-term interest rates influence, directly and indirectly, the
         business atmosphere, which is itself a significant factor in the
         commercial and leisure industries, due to high interest rate depress
         corporate spending on which our businesses highly depends.

4.       CREDIT RISKS

         Cash, cash equivalents and bank deposits are maintained with reputable
         banks. In the hotel division and in the Arena, services and sales are
         rendered to large numbers of customers and the Company is not
         significantly exposed to credit risks arising from dependence on any
         single customer. In relation to anchor tenants in the Arena, see "Item
         3 - Key Information - Risk Factors - Risk Relating to the Arena".

         The balance of long term receivables as of December 31, 2004 includes
         (i) accrued income in the amount of NIS 11.1 million ($2.6 million), in
         respect of an asset's long term lease agreement (Note 7A. to the
         consolidated financial statements), mainly, due to recognition of
         revenue received from operating lease fees, which are received
         gradually, by the straight line method over the term of the lease; and
         (ii) two loans in the aggregate amount of NIS 21.5 million ($5.0
         million) which were granted by us to the Management Company in the
         framework of an option agreement to acquire 33% of the Park Plaza chain
         in Europe (See Notes 7A.(2)(i) and 16A.(2) to our financial statements.
         Realization of these debts substantially depends on the financial
         stability of the debtors in the long run. See also "Item 3 - Key
         Information - Risk Factors".

5.       MARKETABLE AND EQUITY SECURITIES

         For information on composition of the short and long-term investment
         portfolio, see Note 4 and Note 8 to the financial statements included
         in Item 18. Such investments are exposed to market-price fluctuation.

6.       VENTURE CAPITAL INVESTMENTS

         For information on exposures relating to venture capital investments,
         see "Item 3 - Risk Factors - Risks relating the our bio-technology
         investment.

7.       RENT INCOME FROM THE ARENA

         For information on risks relating to the market price of lease of
         spaces in Arena, see "Item 3 - Key


                                      -85-
<PAGE>
         Information - Risk Factors - Risk Relating to the Arena".

         Our financial results are affected by general economic conditions in
         the markets in which our properties are located. An economic recession,
         or other adverse changes in general or local economic conditions, could
         result in the inability of some of our existing tenants to meet their
         lease obligations and could otherwise adversely affect our ability to
         attract or retain tenants.

8.       LAND AND REAL ESTATE RATES RISK

         Some of our real estate properties are subject to leases of land or
         buildings. Annual payments for those leasehold properties are linked to
         various real estate indexes. Prosperity of such real estate market may
         influence the level of those indexes and result in increasing annual
         payments. We are generally able to off set higher rental fees paid by
         us with greater revenues from our tenants.

9.       FINANCIAL INSTRUMENTS

         From time to time, throughout the reported year, we engage in the
         trading of derivative and other financial instruments for hedging
         purposes. The results of such activities and the value of the trading
         instruments are affected by the changes and volatility in foreign
         exchange rates and interest rates and equity indices. Changes in
         Israeli and global foreign exchange rates, interest rates and equity
         indices may significantly affect our financial results and our assets,
         liabilities, equity capital and cash flow, as a result of the
         aforementioned trading activity.

         It should be noted that due to the high volatility of global financial
         markets, foreign exchange, interest rate and equity trading involve
         significant risks, mainly in the short term.

         For currency transactions outstanding as at December 31, 2004, see
         Table II - Derivative contracts on foreign exchange rates below.

10.      FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's and its subsidiaries' financial instruments include
         monetary assets (cash and cash equivalents, short and long-term
         deposits, trade accounts receivables, marketable securities as well as
         other receivables and current accounts) and monetary liabilities
         (short-term credits, long-term liabilities, trade accounts payables as
         well as payables and other credit balances). Due to the nature of the
         financial instruments included in working capital, their fair values
         approximates those presented in the balance sheet.

         The fair value of long term trade accounts receivable, deposits and
         other long-term liabilities is ordinarily based on the present value of
         future receipts and disbursements, discounted by the interest rate
         applicable to the Company's lending or borrowing activities under
         similar terms as of the balance sheet date, and is not materially
         different from what is presented in the financial statements.

         For information on the presentation of long-term balances not under
         market conditions, see Note 2J. to the financial statements included in
         Item 18.

         Derivative financial instrument that have an active market were valued
         based on market values.

         The assets that were included in long term investments for which market
         values differ from their carrying amounts are as follows:


                                      -86-
<PAGE>
<TABLE>
<CAPTION>
                                                                   December 31, 2004                May 31, 2005
                                                                    NIS (millions)                 NIS (millions)
                                                          ----------------------------------       --------------
                                                          Carrying amount       Market value        Market value
                                                          ---------------       ------------        ------------
<S>                                                       <C>                   <C>                <C>
        Bucuresti (see note 8C. to the financial
        statements)                                            234.0              23.4 (1)              25.6 (1)
        Permanent investment in EMI's shares(see note
        8A.(2). to the financial statements)                    23.9              20.8 (2)              45.1 (2)
</TABLE>

        (1)      Shares are traded on Bucharest stock exchange in Romania
                 ("RASDAQ").

        (2)      Shares are traded on Tel Aviv stock exchange in Israel and in
                 the "NASDAQ".

TABLE I - FOREIGN CURRENCY RISKS

The table below provides information as at December 31, 2004 regarding the
Company's financial assets and liabilities (including inter-company balances)
denominated or linked to foreign currencies:


                                      -87-
<PAGE>
NIS (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                               BRITISH GB
                                                                                 POUND
                                                                                STERLING
FUNCTIONAL CURRENCY                                   ISRAELI SHEKELS (NIS)   (GB POUND)      EURO (EURO)
-------------------                                 ------------------------  ----------  -----------------
                                                                        GB                              GB
Linkage Currency (2)                                    $      Euro    Pound      Euro        $       Pound
<S>                                                 <C>      <C>      <C>     <C>         <C>       <C>
CURRENT ASSETS:

Cash and cash equivalents                               19       16       --        --        --        --
Short term deposits and investments                    134       --       --        --        --        --
Receivables and other current assets                     1       --       --        --        --        --
                                                    ------   ------   ------    ------    ------    ------
                                                       154       16       --        --        --        --
                                                    ------   ------   ------    ------    ------    ------
LONG TERM INVESTMENTS AND RECEIVABLES:

Deposits, loans and receivables                          3       --       --        --        22        --
Investments in investees and other companies: (3)
Shares                                                  18     (278)      --        --        --       (58)
Loans                                                  433      336      114        --        --       133
                                                    ------   ------   ------    ------    ------    ------
                                                       454       58      114        --        22        75
                                                    ------   ------   ------    ------    ------    ------
ASSETS RELATED TO DISCONTINUING OPERATIONS              --        5       --        --        --        --
                                                    ------   ------   ------    ------    ------    ------
TOTAL ASSETS                                           608       79      114        --        22        75
                                                    ======   ======   ======    ======    ======    ======
CURRENT LIABILITIES:

Short term credit                                        1        2        1        --        --        --
Payables and other current liabilities                   5        6        3        --        --        --
                                                    ------   ------   ------    ------    ------    ------
                                                         6        8        4        --        --        --
                                                    ------   ------   ------    ------    ------    ------
LONG TERM LIABILITIES:

Group companies                                         --       --       --       164       433       129
Others                                                 199      206       85        --        --        --
                                                    ------   ------   ------    ------    ------    ------
                                                       199      206       85       164       433       129
                                                    ------   ------   ------    ------    ------    ------
LIABILITIES RELATED TO DISCONTINUING OPERATIONS         66        5       --        --        --        --
                                                    ------   ------   ------    ------    ------    ------
TOTAL LIABILITIES                                      271      219       89       164       433       129
                                                    ======   ======   ======    ======    ======    ======

TOTAL ASSETS LESS TOTAL LIABILITIES (4)                337     (140)      25      (164)     (411)      (54)
                                                    ======   ======   ======    ======    ======    ======
Footnotes
</TABLE>

<TABLE>
<CAPTION>

                                                                                   RECONCILIATION
                                                                                       FOR
FUNCTIONAL CURRENCY                                 ROMANIAN LEI (ROL)  OTHERS(1)   CONSOLIDATION  TOTAL
-------------------                                 ------------------  ---------   -------------  -----

Linkage Currency (2)                                  $       Euro
<S>                                                 <C>       <C>       <C>         <C>            <C>
CURRENT ASSETS:

Cash and cash equivalents                               --        --         7               --        42
Short term deposits and investments                      2        --        43               --       179
Receivables and other current assets                    --        --        35               (3)       33
                                                    ------    ------    ------           ------    ------
                                                         2        --        85               (3)      254
                                                    ------    ------    ------           ------    ------
LONG TERM INVESTMENTS AND RECEIVABLES:

Deposits, loans and receivables                         --        --        15               --        40
Investments in investees and other companies: (3)
Shares                                                  --        --        15              344        41
Loans                                                   --        --       292           (1,308)       --
                                                    ------    ------    ------           ------    ------
                                                        --        --       322             (964)       81
                                                    ------    ------    ------           ------    ------
ASSETS RELATED TO DISCONTINUING OPERATIONS              --        10        --               15
                                                    ------    ------    ------           ------    ------
TOTAL ASSETS                                             2        --       417             (967)      350
                                                    ======    ======    ======           ======    ======
CURRENT LIABILITIES:

Short term credit                                      119         2        --               10       135
Payables and other current liabilities                   1        --        91               (3)      103
                                                    ------    ------    ------           ------    ------
                                                       120         2        91                7       238
                                                    ------    ------    ------           ------    ------
LONG TERM LIABILITIES:

Group companies                                         --        89       493           (1,308)       --
Others                                                  --        --       846              (10)    1,326
                                                    ------    ------    ------           ------    ------
                                                        --        89     1,339           (1,318)    1,326
                                                    ------    ------    ------           ------    ------
LIABILITIES RELATED TO DISCONTINUING OPERATIONS         --        --        --               --        71
                                                    ------    ------    ------           ------    ------
TOTAL LIABILITIES                                      120        91     1,430           (1,311)    1,635
                                                    ======    ======    ======           ======    ======

TOTAL ASSETS LESS TOTAL LIABILITIES (4)               (118)      (91)   (1,013)             344    (1,285)
                                                    ======    ======    ======           ======    ======
Footnotes
</TABLE>

(1) Includes mainly, unlinked balances of financial assets (liabilities) and
linkage currencies which total financial assets or financial liabilities that
are denominated therein or linked thereto, do not exceed 5% of total financial
assets or financial liabilities, respectively (on a consolidated basis).

(2) As for investments in investees' shares - "linkage currency" means the
functional currency of each investee. As for loans to investees with nature of
investment - "linkage currency" means the currency that the loan is denominated
in or linked to.

(3) Primarily loans from financing an investment in an autonomous investee taken
in the functional currency of the investee (for hedging, qualified hedges for
accounting purposes). The effect of the exchange rates on these loans are
charged directly to shareholders equity and not to the statements of operations.

                                      -88-
<PAGE>
(4) comprise as follows:

<TABLE>
<CAPTION>
                                                                             BRITISH GB
                                                                                POUND
                                                                              STERLING
FUNCTIONAL CURRENCY                                 ISRAELI SHEKELS (NIS)    (GB POUND)     EURO (EURO)
-------------------                             ---------------------------  ----------  ----------------
                                                                       GB                            GB
Linkage Currency (2)                                $       Euro     Pound      Euro        $       Pound
<S>                                             <C>       <C>       <C>       <C>        <C>       <C>
Net monetary items(5)                             (114)     (198)      (89)       --         22        --
Inter - company balances (loans with a nature
  of investment)(6)                                433       336       114      (164)      (433)        4
Investments in investees' shares(6)                 18      (278)       --        --         --       (58)
                                                ------    ------    ------    ------     ------    ------
TOTAL                                              337      (140)       25      (164)      (411)      (54)
                                                ======    ======    ======    ======     ======    ======
</TABLE>

<TABLE>
<CAPTION>

                                                                                   RECONCILIATION
                                                                                        FOR
FUNCTIONAL CURRENCY                                ROMANIAN LEI (ROL)  OTHERS (1)   CONSOLIDATION    TOTAL
-------------------                                ------------------  ----------   -------------    -----

Linkage Currency (2)                                   $      Euro
<S>                                                <C>       <C>        <C>        <C>              <C>
Net monetary items(5)                                (118)       (2)      (827)              --     (1,326)
Inter - company balances (loans with a nature
  of investment)(6)                                    --       (89)      (201)              --          --
Investments in investees' shares(6)                    --        --         15              344          41
                                                   ------    ------     ------           ------      ------
TOTAL                                                (118)      (91)    (1,013)             344     (1,285)
                                                   ======    ======     ======           ======      ======
</TABLE>

(5) The impact of exchange rates exposure, on net monetary items, is charged
directly to the statements of operations.

(6) The impact of exchange rates exposure on these items is charged directly to
the shareholders equity and not to the statements of operations.

(7) Exchange rates:

<TABLE>
<CAPTION>
                                                                     BRITISH GB
                                                                   POUND STERLING
        FUNCTIONAL CURRENCY             ISRAELI SHEKELS (NIS)        (GB POUND )    EURO (EURO)       1,000 ROMANIAN LEI (ROL)
        -------------------          --------------------------    --------------   -----------       ------------------------
                                                           GB
        Linkage Currency               $        Euro      Pound         Euro             $               $               Euro
<S>                                  <C>        <C>       <C>      <C>              <C>               <C>               <C>
        May 31, 2005                 4.416      5.442     8.031         0.678          0.812           29.38            36.22
                                     -----      -----     -----         -----          -----           -----            -----

        December 31, 2004            4.308      5.877     8.308         0.704          0.732           29.07            39.66
                                     -----      -----     -----         -----          -----           -----            -----

        December 31, 2003            4.379      5.533     7.849         0.705          0.795           32.60            41.12
                                     -----      -----     -----         -----          -----           -----            -----
</TABLE>

(8) Changes in the exchange rates (%):

<TABLE>
<CAPTION>
                                                                     BRITISH GB
                                                                   POUND STERLING
        FUNCTIONAL CURRENCY             ISRAELI SHEKELS (NIS)        (GB POUND )    EURO (EURO)       1,000 ROMANIAN LEI (ROL)
        -------------------             ---------------------        -----------    -----------       ------------------------
                                                           GB
        Linkage Currency               $        Euro      Pound         Euro             $               $               Euro
<S>                                  <C>        <C>       <C>      <C>              <C>               <C>               <C>
        May 31, 2005                  2.51     (7.40)     (3.33)       (3.69)          10.93           0.72             (8.67)
                                     -----      -----     -----         -----          -----           -----            -----

        December 31, 2004            (1.62)     6.21       5.85        (0.07)          (7.87)         (10.82)            3.54
                                     -----      -----     -----         -----          -----           -----            -----

        December 31, 2003            (7.56)     11.33      2.83         8.17          (16.53)         (2.70)            17.75
                                     -----      -----     -----         -----          -----           -----            -----
</TABLE>


                                      -89-
<PAGE>
TABLE II - DERIVATIVE CONTRACTS ON FOREIGN
EXCHANGE RATES

The following presents a summery of the currency transactions outstanding at
December 31, 2004:

(1)      As for loans denominated in foreign currency obtained for the purpose
         of accounting hedging - see comment (3) to Table 1 above.

(2)      Swap transaction - in order to hedge the risk on variable interest rate
         on long-term loans - see Note 22A. to our financial statements.

TABLE III - INTEREST RISKS

The following table presents a summary of balances classified according to
interest rate, at December 31, 2004:

1.       DEPOSITS AND OTHER LONG TERM LOANS- IN NIS (MILLIONS)

<TABLE>
<CAPTION>
         FUNCTIONAL   LINKAGE       INTEREST
         CURRENCY     CURRENCY       RATE %                              REPAYMENT YEARS
                                                  -------------------------------------------------------------
                                                                                               NOT YET
                                                  1       2      3       4     THEREAFTER    DETERMINED   TOTAL
                                                  -       -      -       -     ----------    ----------   -----
<S>                   <C>          <C>            <C>    <C>    <C>     <C>    <C>           <C>          <C>
         EURO         U.S. dollar      (1)        --      7     --      --        --             16         23

         EURO         EURO          1.95-4.9      --      1     --      --        --              8          9

         GB Pound     GB Pound         --         --     --     --      --        11             --         11

         NIS          U.S. dollar  Libor+1.5-2     2      1      1      --        --              1          5

         NIS          NIS              --         18     --     --      --        --             --         18

         TOTAL                         --         20      9      1      --        11             25         66
                                                  ==     ==     ==      ==        ==             ==         ==
</TABLE>

(1) See Note 7 (A) (2) to the financial statement included in Item 18.

2.       LONG TERM DEBTS - IN NIS (MILLIONS)

<TABLE>
<CAPTION>
                                                                                          REPAYMENT YEARS
                                                                        -----------------------------------------------------
         FUNCTIONAL   LINKAGE                        AVERAGE INTEREST                                          6 AND
         CURRENCY     CURRENCY    INTEREST RATE %       RATE (%)         1      2       3       4      5    THEREAFTER  TOTAL
         --------     --------    ---------------       --------         -      -       -       -      -    ----------  -----
<S>                   <C>         <C>                <C>                <C>   <C>      <C>     <C>    <C>   <C>         <C>
         EURO         EURO        5.1 (1)                  5.1           2      1       3       4     201       -        211

         UK Pound     UK Pound

         Sterling     Sterling    LIBOR + 1.4 -1.65        6.3           7    200(2)   13      13      13      219       465

         UK Pound     UK Pound

         Sterling     Sterling    5.8 (2)                  5.8           1      1       1       2      2       145       152

         S.A. Rand    S.A. Rand   Prime-1                 10.5           -      -       -       -      -        5         5

         NIS          NIS         Prime +2.2               7.5           -      9       -       -      -        -         9

         NIS          U.S. dollar  LIBOR +2.50-2.85        4.6           -    190(2)    -       -      -        -        190

         NIS          EURO        LIBOR +2.85              5.1           -     206      -       -      -        -        206

                      UK Pound

         NIS          Sterling    LIBOR +2.85              7.8           -      85      -       -      -        -        85

         TOTAL                                                          10     692     17      19     216      369      1,323
</TABLE>


                                      -90-
<PAGE>
         (1) The interest rate on these loans have been fixed by a swap
         transactions.

         (2) See Note 13D and E to the financial statements included in Item 18.

3.       SHORT TERM CASH AND DEPOSITS - see notes 3 and 4 to the financial
         statements included in Item 18.

4.       SHORT TERM LOANS - see Note 11 to the financial statements included in
         Item 18.


         ITEM 12. -- DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

PART II

         ITEM 13. -- DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

         ITEM 14. -- MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                     AND USE OF PROCEEDS.

         Not applicable.

PART III

         ITEM 15. -- CONTROLS AND PROCEDURES

         (a) Disclosure Controls and Procedures.

         Our chief executive officer and chief financial officer, after
evaluating the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as
of December 31, 2004, have concluded that, as of such date, our disclosure
controls and procedures were effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure and is recorded, processed, summarized and reported within
the periods specified by the SEC's rules and forms.

         b) Internal Control Over Financial Reporting.

                  Not Applicable.

         c) Attestation Report of the registered public accounting firm.

                   Not Applicable.


                                      -91-
<PAGE>
         d) Changes in Internal Controls Over Financial Reporting. There has
been no change in our internal controls over financial reporting (as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act) identified within the
evaluation thereof that occurred during 2004, that has materially affected, or
is reasonably likely to materially affect our internal controls over financial
reporting.

         ITEM 16. -- [RESERVED]

         ITEM 16A. -- AUDIT COMMITTEE FINANCIAL EXPERT

         Our board of directors has determined that each of Mr. Moshe Lion and
Mr. Shmuel Peretz are "audit committee financial experts" as defined in Item 16A
of Form 20-F.

         ITEM 16B. -- CODE OF ETHICS

         We have adopted a Code of Ethics and Business Conduct that applies to
our principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions, as
well as all our other directors, officers and employees. Our Code of Ethics and
Business Conduct is attached to this report as Exhibit 11.1.

         ITEM 16C. -- PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Brightman Almagor & Co., an independent registered public accounting
firm in Israel and a member firm of Deloitte Touche Tohmatsu have served as our
independent public accountants for the fiscal year ended December 31, 2004, for
which audited financial statements appear in this annual report on Form 20-F.

         A)       AUDIT FEES

         The aggregate fees billed for professional services constituting Audit
Fees, rendered to us by Brightman Almagor & Co., in 2003 and 2004 were NIS 1.1
million and approximately NIS 1.,4 million.

         B)       AUDIT RELATED FEES

         We did not receive from our principal accountants any assurance or
services related to the audit and review of our financial statements in 2003 or
2004.

         C)       TAX FEES

         The aggregate fees billed for professional services constituting Tax
Fees, rendered to us by Brightman Almagor & Co., in 2003 and 2004 were NIS
97,000 and NIS 89,000, respectively. Such services related to tax consulting
services provided to us.

         D)       ALL OTHER FEES

         We did not receive from Brightman Almagor & Co., any other products or
services, other than the services disclosed above, in 2003 and 2004.

         E)       PRE-APPROVAL POLICIES AND PROCEDURES

         Our Audit Committee oversees the appointment, compensation, and
oversight of the public accounting firm engaged to prepare or issue an audit
report on the financial statements of the Company. The audit committee's
specific responsibilities in carrying out its oversight role include the
approval of all audit and non-audit services to be provided by the external
auditor and quarterly review the firm's non-audit services and related fees.
These services may include audit services, audit-related services, tax services
and other services, as described above. The audit committee approves in advance
the particular services or categories of services to be provided to the Company


                                      -92-
<PAGE>
during the following yearly period and also sets forth a specific budget for
such audit and non-audit services. Additional services may be pre-approved by
the audit committee on an individual basis during the year.

         None of Audit-related Fees, Tax Fees or Other Fees provided to us by
Brightman Almagor & Co.,, were approved by the Audit Committee pursuant to the
de minimis exception to the pre-approval requirement provided by Section 10A of
the Securities Act of 1934.

         F)       PERCENTAGE

         Not applicable.



         ITEM 16D. -- EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

         Not applicable.


                                      -93-
<PAGE>

         ITEM 16E. -- PURCHASES OF EQUITY SECURITIES BY THE COMPANY AND
                      AFFILIATED PURCHASERS

<TABLE>
<CAPTION>
         Period           (a) Total            (b) Average          (c) Total            (d) Maximum number (or
                          number of shares     price paid per       number of shares     approximately dollar
                          purchased            share                purchased as part    value) of shares that may
                                                                    of publicly          yet be purchased under
                                                                    announced plans      the plans or programs
                                                                    or programs
<S>                       <C>                  <C>                  <C>                  <C>
         November         576,923              $5.2                 N/A                  N/A
       2004
</TABLE>

         In November 2003, our board of directors approved the repurchase of our
ordinary shares in an aggregate amount of up to $3 million under a share
repurchase program (either in the open market or in privately negotiated
transactions). To date the Company has not repurchased any shares and this
program has been canceled.

         In November 2004, a transaction was consummated under which we
transferred to an institutional investor ("the Investor") 357,953 shares of EMI
held by us in consideration for 576,923 of our shares held by the Investor. The
ratio of the share transfer was determined based on the closing price of EMI's
shares on the stock exchange as at the date of the transaction ($ 8.4 per
share). The price of the Company's share on the NYSE as at such date was $ 4.3
per share. This transaction was recorded, in the Company's financial statements,
as a self purchase of the Company's shares based on their fair value in
consideration for proceeds from realization of EMI shares.

         ITEM 17. -- FINANCIAL STATEMENTS

         We have responded to Item 18 in lieu of this item.

         ITEM 18. -- FINANCIAL STATEMENTS

         The Financial statements required by this item are found at the end of
this annual report, beginning on page F-1.

         ITEM 19. -- EXHIBITS

1.1 (1)     Memorandum of Association

1.2 (1)     Articles of Association

1.3# (2)    Notice dated October 10, 2000 sent by the Registrant to the
            Israeli Companies Registrar with respect to an amendment to the
            Articles of Association.

4.1 (3)     Loan agreement among, inter alia, Depfa Bank AG, Victoria Hotel C.V.
            and Utrecht Victoria Hotel B.V. dated March 24, 1999.

4.2 (3)     Management agreement between Victoria Hotel C.V. and Park Plaza
            Hotel Europe, Ltd. (previously Prestige Hotels International Ltd.)
            dated October 4, 1993.

4.3 (3)     Management support and sub-license agreement between Astrid Park
            Plaza N.V. and Park Plaza Hotels Europe Ltd. dated April 15, 1997.

4.4 (2)     Loan agreement dated December 21, 2000 with Bank Hapoalim B.M. with
            respect to the financing of the Victoria Park Plaza Hotel.

4.5# (2)    Loan facility agreement dated October 23, 2000 between the
            Registrant and Bank Hapoalim B.M. with respect to a $110 million
            line of credit.


                                      -94-
<PAGE>
4.6(5)      Asset Purchase and Sale Agreement dated November 13, 2002 by and
            among Elscint Ltd., Sanmina - Sci Corporation and Sanmina-Sci Israel
            Medical Systems Ltd. for the sale of the Company's factory in
            Ma'alot.

4.7(5)      Lease Agreement dated January 6, 2003 between Euston Road Hotel
            Limited and Accor SA for a long term lease of the hotel property
            located on Euston Road in London, England (previously Bernard Shaw
            Park Plaza) for a period of 25 years.

4.8#(2)     Development agreement dated December 17, 2000 with the Israeli Land
            Administration with respect to the Monfort Project.

4.9#(4)     Agreement dated April 14, 2002 between SLS Sails Ltd. and C.D.P.M.
            Kft. for the completion of the construction works of the Arena.

4.10(*)     Credit Agreement dated December 16, 2003 between Riverbank Hotel
            Holding B.V. and Bank Hapoalim B.M. with respect to repayment of a
            short-term facility and construction of the hotel.

8.1(*)      List of subsidiaries.

10.1(*)     Consent of Brightman Almagor & Co.

10.2(*)     Consent of Mazars Paardekooper Hoffman.

10.3(*)     Consent of Kost Forer Gabbay & Kasierer.

11(*)       Code of Ethics and Business Conduct.

12.1(*)     Certification of the President of the Registrant pursuant to Rule
            13a-14(a), as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

12.2(*)     Certification of CFO of the Registrant pursuant to Rule 13a-14(a),
            as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002.

13.1(*)     Certification of President of the Registrant to Rule 13a-14(b), as
            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2(*)     Certification of CFO of the Registrant to Rule 13a-14(b), as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

---           -------------------------------

         (1)  Previously filed as an exhibit to Elscint's Registration Statement
              on Form F-1, file No. 33-43258, filed with the SEC on October 8,
              1991 and incorporated by reference herein.

         (2)  Previously filed as an exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 2000, file No. 2-44872, filed
              with the SEC on July 10, 2001 and incorporated by reference
              herein.

         (3)  Previously filed as an Exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 1999, file No. 2-44872, filed
              with the SEC on June 2, 2000 and incorporated by reference herein.

         (4)  Previously filed as an exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 2001, file No. 2-44872, filed
              with the SEC on June 28, 2002 and incorporated by reference
              herein.

         (5)  Previously filed as an exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 2003, file No. 2-44872, filed
              with the SEC on June 30, 2003 and incorporated by reference
              herein.

         #    Translation from Hebrew.


                                      -95-
<PAGE>
         (*)  Filed herewith


                                      -96-
<PAGE>
                                   SIGNATURES

         The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that is has duly caused and authorized the
undersigned to sign this annual report on it behalf.

                                             By: /s/ Rachel Lavine
                                                 -------------------------------
                                                 Name: Rachel Lavine
                                                 Title: President

         Date: June 30, 2005


                                      -97-
<PAGE>
                                  EXHIBIT INDEX

1.1(1)      Memorandum of Association

1.2(1)      Articles of Association

1.3#(2)     Notice dated October 10, 2000 sent by the Registrant to the
            Israeli Companies Registrar with respect to an amendment to the
            Articles of Association.

4.1(3)      Loan agreement among, inter alia, Depfa Bank AG, Victoria Hotel C.V.
            and Utrecht Victoria Hotel B.V. dated March 24, 1999.

4.2(3)      Management agreement between Victoria Hotel C.V. and Park Plaza
            Hotel Europe, Ltd. (previously Prestige Hotels International Ltd.)
            dated October 4, 1993.

4.3(3)      Management support and sub-license agreement between Astrid Park
            Plaza N.V. and Park Plaza Hotels Europe Ltd. dated April 15, 1997.

4.4(2)      Loan agreement dated December 21, 2000 with Bank Hapoalim B.M. with
            respect to the financing of the Victoria Park Plaza Hotel.

4.5#(2)     Loan facility agreement dated October 23, 2000 between the
            Registrant and Bank Hapoalim B.M. with respect to a $110 million
            line of credit.

4.6(5)      Asset Purchase and Sale Agreement dated November 13, 2002 by and \
            among Elscint Ltd., Sanmina - Sci Corporation and Sanmina-Sci Israel
            Medical Systems Ltd. for the sale of the Company's factory in
            Ma'alot.

4.7(5)      Lease Agreement dated January 6, 2003 between Euston Road Hotel
            Limited and Accor SA for a long term lease of the hotel property
            located on Euston Road in London, England (previously Bernard Shaw
            Park Plaza) for a period of 25 years.

4.8#(2)     Development agreement dated December 17, 2000 with the Israeli Land
            Administration with respect to the Monfort Project.

4.9#(4)     Agreement dated April 14, 2002 between SLS Sails Ltd. and C.D.P.M.
            Kft. for the completion of the construction works of the Arena.

4.10(*)     Credit Agreement dated December 16, 2003 between Riverbank Hotel
            Holding B.V. and Bank Hapoalim B.M. with respect to repayment of a
            short-term facility and construction of the hotel.

8.1(*)      List of subsidiaries.

10.1(*)     Consent of Brightman Almagor & Co.

10.2(*)     Consent of Mazars Paardekooper Hoffman.

10.3(*)     Consent of Kost Forer Gabbay & Kasierer.

11(*)       Code of Ethics and Business Conduct.

12.1(*)     Certification of the President of the Registrant pursuant to Rule
            13a-14(a), as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

12.2(*)     Certification of CFO of the Registrant pursuant to Rule 13a-14(a),
            as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
            2002.

13.1(*)     Certification of President of the Registrant to Rule 13a-14(b), as
            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                      -98-
<PAGE>
13.2(*)     Certification of CFO of the Registrant to Rule 13a-14(b), as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

         -------------------------------

         (1)  Previously filed as an exhibit to Elscint's Registration Statement
              on Form F-1, file No. 33-43258, filed with the SEC on October 8,
              1991 and incorporated by reference herein.

         (2)  Previously filed as an exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 2000, file No. 2-44872, filed
              with the SEC on July 10, 2001 and incorporated by reference
              herein.

         (3)  Previously filed as an Exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 1999, file No. 2-44872, filed
              with the SEC on June 2, 2000 and incorporated by reference herein.

         (4)  Previously filed as an exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 2001, file No. 2-44872, filed
              with the SEC on June 28, 2002 and incorporated by reference
              herein.

         (5)  Previously filed as an exhibit to Elscint's Annual Report on Form
              20-F for the year ended December 31, 2003, file No. 2-44872, filed
              with the SEC on June 30, 2003 and incorporated by reference
              herein.

         #    Translation from Hebrew.

         (*)   Filed herewith


                                      -99-
<PAGE>













                                  ELSCINT LTD
                        CONSOLIDATED FINANCIAL STATEMENTS
                                      AS OF
                                DECEMBER 31, 2004














































                                      F-1
<PAGE>
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004

CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
<S>                                                               <C>
Report of Independent Registered Public Accounting Firm                    F-3-5

Consolidated Balance Sheets                                                F-6-7

Consolidated Statements of Operations                                        F-8

Statements of Shareholders' Equity                                           F-9

Consolidated Statements of Cash Flows                                    F-10-12

Notes to the Consolidated Financial Statements                              F-13

Appendix                                                                 F-62-65
</TABLE>


                                       F-2

<PAGE>
(DELOITTE LETTERHEAD)
                                                    Brightman Almagor
                                                    1 Azrieli Center
                                                    Tel Aviv 67021
                                                    P.O.B. 16593, Tel Aviv 61164
                                                    Israel

                                                    Tel: +972 (3) 608 5555
                                                    Fax: +972 (3) 609 4022
                                                    info@deloitte.co.il
                                                    www.deloitte.com


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF

ELSCINT LIMITED

We have audited the accompanying consolidated balance sheets of Elscint Limited
and its subsidiaries ("the Company") as of December 31, 2004 and 2003, and the
related consolidated statements of operations, shareholders' equity and cash
flows, for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of certain fully and
proportionately consolidated subsidiaries, whose assets constitute 2% of the
total consolidated assets as of December 31, 2004 and 2003 and whose revenues
constitute 1%, 8% and 22% of the total continuing and discontinuing consolidated
revenues for the years ended December 31, 2004, 2003 and 2002, respectively. We
also did not audit the financial statements of an affiliate accounted for by use
of the equity method. The Company's equity of NIS 18 million and NIS 24.3
million in that affiliate's net assets as of December 31, 2004 and 2003,
respectively, and of NIS 7 million in that affiliate's net loss for each of two
years then ended, are included in the accompanying financial statements. The
financial statements of those fully and proportionately consolidated
subsidiaries and the affiliate, prepared in accordance with International
Financial Reporting Standards or with accounting principles generally accepted
in the United States of America, were audited by other auditors whose reports
thereon were furnished to us, and our opinion, insofar as it relates to amounts
included for those companies, on such basis of accounting, is based solely on
the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements (including the Company's conversion of amounts in the
financial statements of fully and proportionately consolidated subsidiaries and
the affiliate, prepared in accordance with International Financial Reporting
Standards or accounting principles generally accepted in the United States of
America to amounts in accordance with generally accepted accounting principles
in Israel and in the United States of America). An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits and the reports of other auditors provide a reasonable basis for our
opinion.


Audit.Tax.Consulting.Financial Advisory.                        A member firm of
                                                        Deloitte Touche Tohmatsu
                                      F-3
<PAGE>
(DELOITTE LETTERHEAD)
                                                    Brightman Almagor
                                                    1 Azrieli Center
                                                    Tel Aviv 67021
                                                    P.O.B. 16593, Tel Aviv 61164
                                                    Israel

                                                    Tel: +972 (3) 608 5555
                                                    Fax: +972 (3) 609 4022
                                                    info@deloitte.co.il
                                                    www.deloitte.com


In our opinion, based on our audits and on the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Elscint Limited and its
subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in Israel.

Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 24 to the consolidated financial statements.

As described in Note 2, the financial statements as of December 31, 2004 and for
the year then ended are presented in reported amounts, in accordance with
accounting standards of the Israeli Accounting Standards Board. The financial
statements for the years through December 31, 2003 are presented in values
adjusted until that date, based on the changes in the general purchasing power
of the Israeli currency, in conformity with pronouncements of the Institute of
Certified Public Accountants in Israel.

As described in Note 16B, claims have been filed against the Company, and for
some of those claims, petitions have been filed for certification as class
actions.

Our audits also comprehended the translation of New Israeli Shekel amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2A(1). Such U.S. dollar amounts are
presented solely for the convenience of readers in the United States of America.


/s/ BRIGHTMAN ALMAGOR & CO.

CERTIFIED PUBLIC ACCOUNTANTS

MEMBER FIRM OF DELOITTE TOUCHE TOHMATSU


Tel Aviv (Israel), March 31, 2005



Audit.Tax.Consulting.Financial Advisory.                        A member firm of
                                                        Deloitte Touche Tohmatsu
                                      F-3A
<PAGE>

(ERNST & YOUNG LOGO)

                       o KOST FORER GABBAY & KASIERER   o  Phone: 972-3-6232525
                         3 Aminadav St.                    Fax:   972-3-5622555
                         Tel-Aviv 67067, Israel


                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                                GAMIDA CELL LTD.
                          (A DEVELOPMENT STAGE COMPANY)


         We have audited the accompanying consolidated balance sheets of Gamida
Cell Ltd. (a development stage company) ("the Company") and its subsidiary as of
December 31, 2003 and 2004, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial report. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

       In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiary as of December 31, 2003 and 2004, and the
consolidated results of their operations and cash flows for each of the years
then ended, in conformity with accounting principles generally accepted in the
United States.





Tel-Aviv, Israel                            /s/ KOST FORER GABBAY & KASIERER
February 28, 2005                           A Member of Ernst & Young Global




                                      F-4
<PAGE>
                              (MAZARS LETTERHEAD)

                         REPORT OF INDEPENDENT AUDITORS
                             TO THE SHAREHOLDERS OF
                               B.E.A. HOTELS N.V.

INTRODUCTION

We have audited the accompanying balance sheets of B.E.A. Hotels N.V. ("the
Company") as of December 31, 2004 and 2003 and the statements of income and the
statements of changes in shareholders' equity of the company for each of the
three years in the period ended December 31, 2004. These financial statements
are the responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

SCOPE

We conducted our audit in accordance with International Standards of Auditing
and in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audit in order to obtain reasonable assurance that the financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Board of Directors and management of the company, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

OPINION

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2004 and 2003 and the results of its operations for each of the three years in
the period ended December 31, 2004, in accordance with International Financial
Reporting Standards.

     Amsterdam, March 21, 2005

     MAZARS PAARDEKOOPER HOFFMAN

     /s/ F.D.N. WALTA RA

     F.D.N. Walta RA



                                      F-5
<PAGE>
                                                                 Elscint Limited

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,

<TABLE>
<CAPTION>
                                                                      2004                  2003                  2004
                                                                      ----                  ----                  ----
                                                                                                           CONVINIANCE
                                                                                                            TRANSLATION
                                                                  REPORTED              ADJUSTED              (NOTE 2A)
                                                                  --------              --------              ---------
                                                NOTE                      NIS (THOUSANDS)            U.S. $ (THOUSANDS)
                                                ----              ------------------------------     ------------------
<S>                                             <C>               <C>                 <C>            <C>
ASSETS

CURRENT ASSETS

Cash and cash equivalents                           3                41,777                98,460             9,698
Short-term investments and deposits                 4               179,179               164,571            41,592
Accounts receivable - trade                         5                17,209                17,419             3,995
Receivables and other debit balances                6                16,256                30,432             3,773
Hotel inventories                                                     2,433                 2,865               565
                                                                  ---------             ---------           -------
                                                                    256,854               313,747            59,623
                                                                  ---------             ---------           -------

LONG-TERM RECEIVABLES AND INVESTMENTS

Deposits, loans and long-term receivables           7                39,992           (*)  39,501             9,283
Investments in investee companies and others        8                41,436           (*)  64,630             9,619
                                                                  ---------             ---------           -------
                                                                     81,428               104,131            18,902
                                                                  ---------             ---------           -------
FIXED ASSETS                                        9             2,185,325             2,003,427           507,271
                                                                  ---------             ---------           -------
OTHER ASSETS AND DEFERRED EXPENSES                 10                12,649                10,916             2,936
                                                                  ---------             ---------           -------
ASSETS RELATED TO DISCONTINUING OPERATIONS         21                14,700                16,228             3,412
                                                                  ---------             ---------           -------
                                                                  2,550,956             2,448,449           592,144
                                                                  =========             =========           =======
</TABLE>

(*) Reclassified.

The accompanying notes constitute an integral part of the financial statements.


                                       F-6
<PAGE>
                                                                 Elscint Limited

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,

<TABLE>
<CAPTION>
                                                                           2004                  2003                  2004
                                                                           ----                  ----                  ----
                                                                                                                CONVINIANCE
                                                                                                                TRANSLATION
                                                                       REPORTED              ADJUSTED             (NOTE 2A)
                                                                       --------              --------             ---------
                                                     NOTE                      NIS (THOUSANDS)           U.S. $ (THOUSANDS)
                                                     ----              ------------------------------    ------------------
<S>                                                  <C>              <C>                   <C>          <C>
LIABILITIES AND
 SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Short-term credits                                     11               135,429               407,599            31,436
Accounts payable - trade                                                 46,624                56,749            10,823
Payables and other credit balances                     12                56,357                76,955            13,082
                                                                      ---------             ---------           -------
                                                                        238,410               541,303            55,341
                                                                      ---------             ---------           -------
LONG-TERM LIABILITIES                                  13             1,325,803               850,470           307,754
                                                                      ---------             ---------           -------

LIABILITIES RELATED TO DISCONTINUING OPERATION         21                71,410                82,217            16,576
                                                                      ---------             ---------           -------
MINORITY INTEREST                                                        32,453                28,261             7,533
                                                                      ---------             ---------           -------

COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS     16

SHAREHOLDERS' EQUITY                                  17                882,880               946,198           204,940
                                                                      ---------             ---------           -------
                                                                      2,550,956             2,448,449           592,144
                                                                      =========             =========           =======
</TABLE>

<TABLE>
<S>                                          <C>
      /s/ A.R. Goren                                  /s/ R. Lavine
----------------------------------           ----------------------------------
          A.R. Goren                                      R. Lavine
Chairman of the Board of Directors                        President
</TABLE>


Date:  March 31, 2005.

The accompanying notes constitute an integral part of the financial statements.


                                       F-7
<PAGE>
                                                                 Elscint Limited

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>

                                                                                                                CONVENIENCE
                                                                                                                TRANSLATION
                                                                                                                  (NOTE 2A)
                                                                            2004          2003        2002             2004
                                                                            ----          ----        ----             ----
                                                                        REPORTED             ADJUSTED                 U.S.$
                                                                        --------    ------------------------
                                                                 NOTE               NIS (THOUSANDS)             (THOUSANDS)
                                                                 ----   --------    ------------------------    -----------
<S>                                                              <C>    <C>           <C>            <C>        <C>
REVENUES

Hotels operations and management                                 18A    218,365        189,205       206,679     50,688
Commercial center operations                                             55,263         20,106            --     12,828
Asset leasing                                                            13,238         13,495            --      3,073
Long-term contracts                                                          --             --         1,509         --
                                                                        -------        -------       -------    -------
                                                                        286,866        222,806       208,188     66,589
                                                                        -------        -------       -------    -------
COST OF REVENUES

Hotels operations and management                                 18B    137,622        128,301       133,207     31,946
Commercial center operations                                     18C     59,885         21,975            --     13,901
Asset leasing                                                    18D      3,175          3,510            --        737
Long-term contracts                                                          --             --         1,392         --
                                                                        -------        -------       -------    -------
                                                                        200,682        153,786       134,599     46,584
                                                                        -------        -------       -------    -------

GROSS PROFIT                                                             86,184         69,020        73,589     20,005
Hotels' depreciation, amortization and operating expenses        18E     64,513         50,432        61,503     14,975
Initiation expenses                                                       1,611          4,303         1,773        374
Selling and marketing expenses                                   18F     14,046          8,948            --      3,260
General and administrative expenses                              18G     27,608         29,355        31,574      6,409
                                                                        -------        -------       -------    -------
                                                                        107,778         93,038        94,850     25,018
                                                                        -------        -------       -------    -------
OPERATING LOSS BEFORE FINANCE INCOME (EXPENSES), NET                    (21,594)       (24,018)      (21,261)    (5,013)

Finance income (expenses), net                                   18H    (34,805)       (41,262)       12,805     (8,079)
                                                                        -------        -------       -------    -------
OPERATING LOSS AFTER FINANCE INCOME (EXPENSES), NET                     (56,399)       (65,280)       (8,456)   (13,092)
Other expenses, net                                              18I     (9,361)       (16,176)      (21,502)    (2,173)
                                                                        -------        -------       -------    -------

LOSS BEFORE INCOME TAXES                                                (65,760)       (81,456)      (29,958)   (15,265)

Tax benefits                                                     15        (647)        (8,384)       (5,221)      (151)
                                                                        -------        -------       -------    -------
LOSS AFTER INCOME TAXES                                                 (65,113)       (73,072)      (24,737)   (15,114)

Share in loss of an associated company                                   (6,611)        (7,019)       (2,847)    (1,535)
Minority interest in loss (profit) of a subsidiary                         (724)           746           879       (168)
                                                                        -------        -------       -------    -------
LOSS FROM CONTINUING OPERATIONS                                         (72,448)       (79,345)      (26,705)   (16,817)

NET PROFIT FROM DISCONTINUING OPERATION                          21      11,067         12,972        88,983      2,569
                                                                        -------        -------       -------    -------
NET PROFIT (LOSS)                                                       (61,381)       (66,373)       62,278    (14,248)
                                                                        =======        =======       =======    =======

                                                                                         NIS                      U.S.$
                                                                        ------------------------------------    --------
BASIC EARNINGS (LOSS) PER ORDINARY
  SHARE (NIS 0.05 PAR VALUE) FROM:                               18J
     Continuing operations                                              (4.37)          (4.75)        (1.60)      (1.01)
     Discontinuing operation                                             0.67            0.78          5.33        0.16
                                                                        -------        -------       -------    -------
                                                                        (3.70)          (3.97)         3.73       (0.85)
                                                                        =======        =======       =======    =======
DILUTED EARNINGS (LOSS) PER ORDINARY
 SHARE (NIS 0.05 PAR VALUE) FROM:
     Continuing operations                                                  (*)            (*)        (1.66)         (*)
     Discontinuing operation                                                (*)            (*)         5.10          (*)
                                                                                                     -------
                                                                                                       3.44
                                                                                                     =======
</TABLE>

(*)      Anti dilutive.

The accompanying notes constitute an integral part of the financial statements.


                                       F-8
<PAGE>
                                                                 Elscint Limited

STATEMENTS OF  SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                        LOANS TO
                                                        CUMULATIVE                                    EMPLOYEES FOR
                                                         FOREIGN                                       PURCHASE OF
                                                         CURRENCY                                       COMPANY'S        TOTAL
                                    SHARE   CAPITAL    TRANSLATION   RETAINED     GROSS      TRESURY    INCENTIVE     SHAREHOLDERS'
                                   CAPITAL  RESERVES   ADJUSTMENTS   EARNINGS     AMOUNT      STOCK       SHARES         EQUITY
                                   -------  --------   -----------   --------     ------      -----       ------         ------
                                                                       NIS (THOUSANDS)
                                   ------------------------------------------------------------------------------------------------
<S>                                <C>      <C>        <C>           <C>        <C>         <C>       <C>             <C>
BALANCE AT JANUARY 1, 2002
(ADJUSTED)                           5,310   722,349        3,346    273,032    1,004,037        --         (12,749)     991,288

Net profit                              --        --           --     62,278       62,278        --              --       62,278
Incentive shares
  returned to pool                      (2)     (693)          --         --         (695)       --             695           --
Interest on loans
  to employees                          (3)      (74)          --         --          (77)       --              77           --
Dividend (*)                            --        --           --    (86,154)     (86,154)       --              --      (86,154)
Foreign currency
  translation adjustments               --        --       34,742         --       34,742        --              --       34,742
                                     -----   -------       ------    -------      -------   -------         -------      -------

BALANCE AT DECEMBER 31, 2002
(ADJUSTED)                           5,305   721,582       38,088    249,156    1,014,131        --         (11,977)   1,002,154

Loss                                    --        --           --    (66,373)     (66,373)       --              --      (66,373)
Incentive shares returned to pool       --      (220)          --         --         (220)       --             220           --
Interest on loans to employees          --       975           --         --          975        --            (975)          --
Foreign currency
  translation adjustments               --        --       10,417         --       10,417        --              --       10,417
                                     -----   -------       ------    -------      -------   -------         -------      -------

BALANCE AT DECEMBER 31, 2003
(ADJUSTED)                           5,305   722,337       48,505    182,783      958,930        --         (12,732)     946,198

Loss                                    --        --           --    (61,381)     (61,381)       --              --      (61,381)
Interest on loans to employees          --       763           --         --          763        --            (763)          --
Purchase of the
Company's stock (**)                    --        --           --         --           --   (13,566)             --      (13,566)
Foreign currency
  translation adjustments               --        --       11,629         --       11,629        --              --       11,629
                                     -----   -------       ------    -------      -------   -------         -------      -------
BALANCE AT DECEMBER 31, 2004
(REPORTED)                           5,305   723,100       60,134    121,402      909,941   (13,566)        (13,495)     882,880
                                     =====   =======       ======    =======      =======   =======         =======      =======
</TABLE>

(*)  Excluding dividend in the amount of NIS 3,268 thousand, in respect of
     incentive shares, which was recorded as an expense in the statement of
     operations.

(**)   See Note 18 I. (1) (ii).

The accompanying notes constitute an integral part of the financial statements.


                                       F-9
<PAGE>
                                                                 Elscint Limited

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                                                         CONVENIENCE
                                                                                                                         TRANSLATION
                                                                                                                           (NOTE 2A)
                                                                                 2004          2003           2002              2004
                                                                                 ----          ----           ----              ----
                                                                             REPORTED              ADJUSTED                    U.S.$
                                                                            ---------      ------------------------
                                                                                          NIS (THOUSANDS)                (THOUSANDS)
                                                                            ---------------------------------------      -----------
<S>                                                                         <C>            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net profit (loss)                                                            (61,381)       (66,373)        62,278        (14,248)
Adjustments to reconcile net profit (loss) to net cash from continuing
  operating activities (A)                                                    65,952         61,233        (58,524)        15,309
                                                                            --------       --------       --------       --------
Net cash provided by (used in) continuing operating activities                 4,571         (5,140)         3,754          1,061
Net cash provided by (used in) discontinuing operating activities               (356)       (12,246)        24,135            (83)
                                                                            --------       --------       --------       --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                            4,215        (17,386)        27,889            978
                                                                            --------       --------       --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of fixed and other assets                                          (208,677)      (416,997)      (173,328)       (48,439)
Proceeds from realization of fixed assets                                     20,495          1,646            396          4,757
Purchase of venture capital investment                                            --             --         (4,790)            --
Proceeds from short - term investments, net                                  (12,164)       (16,297)         1,872         (2,824)
Proceeds from sale of long-term investments and loans                          4,367        274,720          3,393          1,014
Purchase of long-term investments and loans                                   (1,586)        (6,647)          (670)          (368)
Decrease of holding in a proportional consolidated subsidiary                     --           (738)            --             --
Purchase of the minority shares in a subsidiary company                         (279)        (1,206)            --            (65)
                                                                            --------       --------       --------       --------

Net cash used in continuing investing activities                            (197,844)      (165,519)      (173,127)       (45,925)
Net cash provided by (used in) discontinuing investing activities              2,144         94,720         (2,359)           498
                                                                            --------       --------       --------       --------
NET CASH USED IN INVESTING ACTIVITIES                                       (195,700)       (70,799)      (175,486)       (45,427)
                                                                            --------       --------       --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from long-term debts                                                308,692        364,868          4,588         71,656
Payments of long-term debt                                                  (133,989)      (323,953)      (141,106)       (31,102)
Change in short-term credits, net                                            (40,894)        53,073        170,371         (9,493)
Dividend Distributed                                                              --             --        (86,154)            --
Issuance of shares to minority shareholders by a subsidiary company               --             --            545             --
                                                                            --------       --------       --------       --------

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES               133,809         93,988        (51,756)        31,061
                                                                            --------       --------       --------       --------

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH                                      993          1,457          2,185            231
                                                                            --------       --------       --------       --------
Net increase (decrease) in cash and cash equivalents                         (56,683)         7,260       (197,168)       (13,157)
Cash and cash equivalents at beginning of year                                98,460         91,200        288,368         22,855
                                                                            --------       --------       --------       --------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                      41,777         98,460         91,200          9,698
                                                                            ========       ========       ========       ========
</TABLE>


The accompanying notes constitute an integral part of the financial statements.


                                       F-10
<PAGE>
                                                                 Elscint Limited

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                                                         CONVENIENCE
                                                                                                                         TRANSLATION
                                                                                                                           (NOTE 2A)
                                                                        2004              2003             2002                 2004
                                                                        ----              ----             ----                 ----
                                                                    REPORTED                    ADJUSTED                       U.S.$
                                                                    --------        ---------------------------                -----
                                                                                    NIS (THOUSANDS)                      (THOUSANDS)
                                                                    -------------------------------------------          -----------
<S>  <C>                                                            <C>             <C>               <C>                <C>
(A)  ADJUSTMENTS TO RECONCILE NET PROFIT (LOSS)
     TO NET CASH FROM CONTINUING OPERATING ACTIVITIES:

     INCOME AND EXPENSES NOT INVOLVING CASH FLOW:

     Discontinuing operation                                        (11,067)          (12,972)         (88,983)           (2,569)
     Depreciation and amortization (including
      impairment of investments and fixed assets)                    87,412            97,745           57,839            20,291
     Share in loss of associated company                              6,611             7,019            2,847             1,535
     Minority interest in the result of a subsidiary                    724              (746)            (879)              168
     Loss from realization of fixed assets                           10,346             1,012              168             2,402
     Gain from realization of long term investments                    (687)          (24,712)              --              (159)
     Exchange rate differences on deposits and loans, net           (16,196)            3,445          (21,973)           (3,762)
     Gain from realization of monetary balances of capital nature   (12,378)           (5,831)              --            (2,873)
     Deferred taxes                                                  (1,639)           (9,316)          (5,656)             (380)
     Others, net                                                        (82)             (861)             549               (19)

     CHANGES IN ASSETS AND LIABILITIES:

     Accounts receivable - trade                                      1,239             3,424           (1,266)              288
     Receivables and other debit balances                            11,151            (3,081)          (5,819)            2,588
     Hotel inventories                                                  633               532              890               147
     Long-term receivables                                           (5,354)           (5,113)              --            (1,243)
     Accounts payable - trade                                        (1,832)            5,369           (1,838)             (425)
     Payables and other credit balances                              (3,001)            3,891            5,261              (697)
     Advances from customers                                             72             1,428              336                17
                                                                     ------            ------          -------            ------

                                                                     65,952            61,233          (58,524)           15,309
                                                                     ======            ======          =======            ======
</TABLE>

The accompanying notes constitute an integral part of the financial statements.


                                       F-11
<PAGE>
                                                                 Elscint Limited

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                                                                                         CONVENIENCE
                                                                                                                         TRANSLATION
                                                                                                                           (NOTE 2A)
                                                                        2004              2003             2002                 2004
                                                                        ----              ----             ----                 ----
                                                                    REPORTED               ADJUSTED                            U.S.$
                                                                    --------        ------------------------                   -----
                                                                                    NIS (THOUSANDS)                      (THOUSANDS)
                                                                    -------------------------------------------          -----------
<S>  <C>                                                            <C>             <C>               <C>                <C>
(B)  SUPPLEMENTAL SCHEDULE OF NON-CASH
     TRANSACTIONS AND INVESTING ACTIVITIES

     Purchase of fixed and other assets by credit                   18,570              36,064           35,540            4,311
                                                                    ======              ======           ======            =====

     Purchase of the Company stocks against
      realization of investment in EMI stocks
      (see Note 18 I.(1)(ii))                                       13,566                   -                -            3,149
                                                                    ======              ======           ======            =====

     Investment grant receivable in respect of
      fixed assets                                                       -                   -            5,265                -
                                                                    ======              ======           ======            =====

     Purchase of venture capital investments shares
      against disposal of long term loan                                 -                   -            2,949                -
                                                                    ======              ======           ======            =====

     Deposits from renters against increase in
      accounts receivable                                                -                   -              203                -
                                                                    ======              ======           ======            =====
</TABLE>

The accompanying notes constitute an integral part of the financial statements.


                                      F-12
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - GENERAL

 A.  The Company engages, directly and through its investees, in Israel and
     abroad, mainly in the following areas:

     -    Ownership, management and operation of hotels, mainly through the Park
          Plaza chain, primarily in major European cities.

     -    Ownership, management and operation of an entertainment and commercial
          center at the Herzliya Marina, in Israel ("the Arena").

     -    Lease of real estate property.

     -    Venture-capital investments.

     Through December 31, 2002 the Company had also been engaged in
     manufacturing of assemblies and subassemblies, mainly for medical imaging
     equipment. As to discontinuance of operation of this segment and sale
     thereof to a third party at the end of 2002 - see Note 21A., below.

B.   The Company's shares are registered for trade on the New York Stock
     Exchange (NYSE).

C.   DEFINITIONS:

      (1) THE COMPANY - Elscint Ltd.

      (2) SUBSIDIARIES - companies in which the Company holds more than 50% of
          the voting rights or of the rights to appoint directors (other than
          circumstances in which such control is deemed temporary).

      (3) PROPORTIONATELY CONSOLIDATED SUBSIDIARIES - companies and joint
          ventures (including partnerships) held by the Company, together with
          other entities, among which there is a contractual agreement for joint
          control, according to which resolutions vital to the joint venture are
          to be made jointly and with the consent of all interest-holders and
          which financial statements are (directly or indirectly) consolidated
          with those of the Company by the proportionate consolidation method.

      (4) ASSOCIATES - companies in which the Company's (direct or indirect)
          rights entitle it to exercise significant influence on their financial
          and operational policies, which have been included on the basis of the
          equity method in accordance with the principles established by Opinion
          No. 68 of the Institute of Certified Public Accountants in Israel
          ("ICPAI") and those which are not fully or proportionately
          consolidated.

      (5) INVESTEE COMPANIES - consolidated subsidiaries, proportionately
          consolidated subsidiaries, and associates. For a list of principal
          investee companies, see Appendix to these financial statements.

      (6) PURCHASE AND/OR HOLDING AND/OR OWNERSHIP AND/OR CONTROL - whether
          directly or indirectly, through Israeli or foreign subsidiaries.

      (7) VENTURE CAPITAL INVESTMENTS - corporations, which at the time of the
          Company's investment therein, are mainly engaged in R&D of new
          knowledge-intensive products or products in progress. The investment
          in these companies involves above-average risk and at least 90% of
          their finance resources originates either by owners' capital
          (including owners' guarantees), in support of governmental
          institutions, or by research grants.

      (8) THE GROUP - the company and its investee companies.

      (9) PARENT COMPANY - Elbit Medical Imaging Ltd. ("EMI")


                                      F-13
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - GENERAL (CONT'D)

 C.  DEFINITIONS (CONT'D)

     (10) EUROPE-ISRAEL (M.M.S.) LTD. - the controlling party in EMI.

     (11) EUROPE-ISRAEL GROUP - Europe Israel (M.M.S.) Ltd. and its investee
          companies ("EIL").

     (12) CONTROL CENTERS - Control Centers Ltd., the controlling
          shareholders of Europe-Israel (M.M.S.) Ltd.

     (13) CONTROL CENTERS GROUP - Control Centers and its investee companies.

     (14) RELATED PARTIES - as defined in terms of Opinion No. 29 of the
          ICPAI.


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 A.  FINANCIAL STATEMENTS IN REPORTED AMOUNTS

     (1)  GENERAL

          Through December 31, 2003, the Company's financial statements were
          prepared in adjusted values (in NIS of constant purchase power), on
          the basis of changes in the consumer price index ("Inflation" and
          "CPI"), in accordance with Opinions No. 36 and 50 of the ICPAI
          ("Opinion 36" and "Opinion 50"). On January 1, 2004, Accounting
          Standard No. 12 of the Israel Accounting Standards Board ("IASB") came
          into force and effect ("Standard 12"). In accordance with the
          provisions of Standard 12, adjustment of financial statements to the
          inflation shall cease commencing January 1, 2004, with adjusted
          amounts of non-monetary items which were included in the balance sheet
          as of December 31, 2003, are used as basis for the nominal financial
          reporting as and from January 1, 2004. Amounts presented in the
          financial statements for periods commencing January 1, 2004 were,
          therefore, included in values to be hereinafter referred to as -
          "Reported amounts"

          The Company maintains its accounting records on a current basis in
          nominal NIS. Nominal amounts were adjusted to their respective
          reported amounts herein, based on the principles detailed in section 2
          below, in accordance with the provisions of Standard 12. Therefore,
          commencing January 1, 2004, the financial statements are presented on
          the basis of the historical values convention, in reported amounts.

          Comparative figures included herein were adjusted to the NIS of
          December 2003.

          The term "cost" in the financial statements indicates cost in reported
          amounts (or adjusted, as the case may be), unless otherwise stated.

          The financial statements as of December 31, 2004 and for the year then
          ended have been translated into U.S. dollar using the representative
          exchange rate as of that date (U.S.$ 1.0 = NIS 4.308). Such
          translation was made solely for the convenience of the U.S. readers.
          The dollar amounts so presented in these financial statements should
          not be construed as representing amounts receivable or payable in
          dollars or convertible into dollars but rather translating of reported
          amounts into U.S. dollars, unless otherwise indicated.


                                      F-14
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 A.  FINANCIAL STATEMENTS IN REPORTED AMOUNTS (CONT'D)

     (2)  PRINCIPLES OF ADJUSTMENTS OF NOMINAL VALUE AMOUNTS TO
          THEIR RESPECTIVE REPORTED AMOUNTS

          BALANCE SHEET

          The balance-sheet items have been included in the following manner:

          Non-monetary items (mainly fixed assets and other assets, depreciation
          thereof, and share capital) have been adjusted according to the
          changes in the CPI from their respective acquisition or formation
          date, as the case may be, through December 2003 and from such date (or
          the acquisition or formation date, whichever be the later) through the
          balance-sheet date - with no further adjustment (in nominal values).

          Monetary items (representing amounts receivable or payable at par
          value or which are presented in realizable values) are included in
          their nominal values.

          The value of investments in investee companies and minority interest
          in subsidiaries have been determined on the basis of the financial
          statements of those companies, in reported values (through 2003 - in
          adjusted values). As to foreign autonomous investee companies - see
          section (3) below.

          Reported values (or adjusted, as the case may be), of non-monetary
          assets do not necessarily represent realizable or actual economic
          value, but rather the original values calculated in accordance with
          the above stated principles.

          STATEMENT OF OPERATIONS

          Statement of operations' items have been included in the following
          manner:

          Revenues and expenses, including financial expenses and excluding
          those generated from non-monetary items, have been recorded in their
          nominal values (such revenues and expense with the exclusion of
          financial expenses were adjusted - during all periods through December
          31, 2003 - to the changes in the CPI from the date of each transaction
          through the balance-sheet date; the financing item reflected financial
          expenses net of financial income in real terms (e.g. interest on
          deposits and credits), results of marketable securities, activities
          and inflationary erosion of monetary items deriving from transactions
          included in the statements of operations).

          Income and expenses stemming from non-monetary items (mainly
          depreciation, amortization and changes in inventories) have been
          recorded on the basis of principles used for the inclusion in the
          balance sheet, of the items to which they relate.

          The Company's share as well as minority interest in the results of
          investee companies were determined on the basis of the financial
          statements thereof in reported amounts (in adjusted values - though
          December 2003). As to foreign autonomous investee companies - see
          section (3), below.


                                      F-15
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 A.  FINANCIAL STATEMENTS IN REPORTED AMOUNTS (CONT'D)

     (3)  FOREIGN INVESTEE COMPANIES

          (i)  Investee companies that operate outside the borders of the state
               of residence of their holding entity, and which constitute
               autonomous entities, prepared their financial statements through
               December 31, 2003 in accordance with the principles established
               in Opinion 36 (including accompanying interpretations no. 8 and
               9) in the currency of their country of residence adjusted to
               changes in the CPI of such country. Such financial statements
               were translated into the holdings entity's reporting currency
               using the exchange rate prevailing as at the balance sheet date
               ("translation" and "closing rate"). Differences between (i)
               adjusted amount of the holding entity's investment in the
               investee companies (including monetary balances of a
               capital-nature), based on changes in the CPI of the country of
               residence of such holding entity; and (ii) the holding entity's
               share in the adjusted shareholders' equity of these investee
               companies as aforestated, as translated into the reporting
               currency of the holding entity as per closing rates, are charged
               to the "Capital reserve from foreign currency translation
               adjustments of autonomous foreign entities' financial statements"
               within shareholders equity. Exchange differences relating to
               foreign currency loans used to finance investments in autonomous
               foreign entities in same currency, were also charged to said
               capital reserve. Income taxes relating to such differences have
               also been included in that item of shareholders' equity.

               Upon the realization of an autonomous foreign entity, in whole or
               in part (including realization as a result of a decline in
               holding percentage arising from the issuance of shares to a third
               party or through the repayment of monetary balances of a
               capital-nature), such foreign currency translation adjustments
               relating to the realized investment are charged to the statement
               of operations as other income (expense).

               As to the realization of capital reserves from foreign currency
               translation adjustments due to a decline in the fair value of
               investments through December 31, 2002 - see G below.

               As from January 1 2004, financial statements of autonomous
               foreign entities were prepared based on principles detailed in
               section (2) above. On January 1, 2004, accounting standard No. 13
               of the IASB came into force and effect, regarding the effect of
               the changes in foreign currency exchange rates, which provides
               for translation of foreign currency transactions and foreign
               operations' financial statements for the inclusion thereof in the
               financial statements of the reporting entity ("Standard 13"). The
               principal provisions of Standard 13 that differ from accounting
               principles used through December 31, 2003 and are relevant to the
               group companies' autonomous foreign entities, are:

               -    Translation of revenues and expenses as well as cash flows,
                    of foreign operations constituting "autonomous foreign
                    entities" based on exchange rate as at the date of
                    transaction or cash flow, as the case may be, or for sake of
                    practicality - using average exchange rate for the period,
                    in contradiction to principles used prior to December 31,
                    2003 which provided for translation of all items of the
                    "autonomous foreign entities" financial statements based on
                    closing rates. Exchange rate differences that result from
                    the difference between translation method of revenues and
                    expenses (average) to that of the shareholders' equity
                    (closing rate) are charged to the "Capital reserve from
                    foreign currency translation adjustments of autonomous
                    foreign entities' financial statements" within shareholders'
                    equity.


                                      F-16
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 A.  FINANCIAL STATEMENTS IN REPORTED AMOUNTS (CONT'D)


     (3)  FOREIGN INVESTEE COMPANIES  (CONT'D)

          (i)  (Cont'd)

               -    Goodwill generated upon acquisition of an "autonomous
                    foreign entity" shall be regarded as an asset of such
                    autonomous foreign entity and be translated based on closing
                    rates, in contradictions to principles used prior to
                    December 31, 2003 whereby said goodwill was considered an
                    independent non-monetary item, of the holding entity.

               -    Classification of foreign operations as "autonomous foreign
                    entity" or as an "integral foreign operation of the Company"
                    based on indicators stipulated in the standard, while
                    exercising management discretion, in contradiction to
                    principles used prior to December 31, 2003 which provided
                    for the fulfillment of certain cumulative tests in order to
                    define foreign operations as "autonomous foreign entity"
                    with no management discretion.

               -    Adjustment of financial statements of "autonomous foreign
                    entities" prior to translation thereof to the reporting
                    currency of the reporting entity, which, as per the
                    principles in effect prior to December 31, 2003 was possible
                    in any case, shall only be carried out when the "autonomous
                    foreign entity" operates in a hyper-inflationary
                    environment. In such instances, translation of the entire
                    financial statements shall be carried out based on closing
                    rates.

          (ii) The entering into effect of Standards 12 and 13 have actually
               terminated henceforth, the provisions of Opinion 36 (which
               determined the CPI of the country of residence to be the
               measurement basis of the adjusted financial statements) and
               Interpretations 8 and 9 thereon (pertaining to the principles
               governing the determination of the measurement basis and
               translation rules of autonomous foreign entities).

               Upon the termination of Opinion 36 (including said
               Interpretations 8 and 9) on January 1, 2004, and with no specific
               standardization existing in Israel as to the "functional
               currency" of autonomous foreign entities, group companies
               constituting autonomous foreign entities, adopted the principles
               set forth by international standardization (International
               Accounting Standard No. 21 (as revised) (IAS- 21) and SIC19).
               Accordingly, the functional currency is that of the primary
               economic environment in which the investee company operates
               (normally being the currency in which it primarily generates and
               expends cash) and that, which as per management discretion,
               exercised based on qualitative criteria stipulated in the
               standard, reflects the economic substance of the underlying
               events and circumstances relevant to such investee company, a
               currency which has been used to a significant extent in its
               operations or alternatively which has a significant impact
               thereon (mainly the economic currency (regulation and competitive
               forces) which serve as basis for determination of: (i) selling
               and settlement prices with customers; (ii) transactions prices
               for land acquisition and construction services or settlement with
               suppliers and subcontractors; (iii) currency policy of the
               investee company (including currency in which receipts from
               operating activities is retained); (iv) its financing activities,
               etc.).


                                      F-17
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

B.   CONSOLIDATED FINANCIAL STATEMENTS

     The consolidated financial statements include the financial statements of
     the Company and its subsidiaries. The results of operations of subsidiaries
     are included from their date of incorporation or proximate to the date of
     acquisition by the Company, as applicable, until the balance-sheet date, or
     date of sale (or transfer to voluntary liquidation), whichever be the
     earlier.

     In accordance with the principles set forth in Opinion No. 57 of the ICPAI,
     the assets, liabilities and operations of jointly controlled companies and
     ventures have been included on the basis of the proportionate-consolidation
     method.

     Data extracted from amounts included in financial statements of
     subsidiaries, have been included within the consolidated financial
     statements following adjustments required for compliance with unified
     accounting principles used by the Group.

     Material inter-company balances and transactions among the group companies
     have been eliminated in the consolidated financial statements.

     Profits generated from inter-company transactions among Group companies,
     the results of which are attributable to assets, which at the respective
     balance-sheet date had not been realized to third-party, were eliminated in
     the consolidated financial statements.

C.   CASH AND CASH EQUIVALENTS

     Cash equivalents include unrestricted liquid deposits with an original
     maturity not exceeding three months.

D.   ALLOWANCE FOR DOUBTFUL DEBTS

     The allowance has been determined on specific balances, the collection of
     which, in the opinion of management, is doubtful.

E.   MARKETABLE SECURITIES

     Investments in marketable securities, designated by management for sale in
     the short term, are included in current assets at their market value at the
     balance-sheet date. Changes in the value of such securities are included in
     the statement of operations as incurred. Investments in securities not
     designated by management for sale in the short term, and which are not part
     of the Company's liquid resources are presented at cost excluding events
     when, in the opinion of management, there exists a decline in value of
     other than temporary nature.

F.   HOTEL INVENTORIES

     Hotel inventory is stated at the lower of cost or market value. Cost is
     determined by the first-in first-out ("FIFO") method.

G.   INVESTMENTS IN INVESTEE COMPANIES AND OTHER COMPANIES

     Investments in associated companies are presented by the equity method.

     In circumstances where the Company's ownership in an investee company
     (mainly, venture capital investments) is in the form of preferred
     securities or other senior securities, the Company records equity method
     losses based on the ownership level of the particular investee securities
     or loans extended by the Company to which the equity method losses are
     being applied.


                                      F-18
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

G.   INVESTMENTS IN INVESTEE COMPANIES AND OTHER COMPANIES (CONT'D)

     In calculating Company's share in equity of investee companies, losses (if
     any) deriving from expected realization of convertible securities or
     exercise of vested rights to shares issued by such associated companies,
     are taken into consideration, if such conversion or exercise is probable.

     The excess of the investment's cost over the Company's share in the fair
     value of the investees' net identified assets at acquisition or upon the
     change from the cost method to the equity method, as applicable, is
     recorded as goodwill and amortized over its estimated economic benefit
     period, (generally 10 years).

     In March 2004, the IASB published standard No. 20, pertaining to goodwill
     amortization period. According to same, goodwill shall be amortized over a
     period not exceeding 20 years from the initial recognition thereof,
     compared to up to 10-year period (except certain circumstances) - based on
     principles in effect prior to publication of such standard. This standard
     applies to financial statements for periods starting on or after January 1,
     2004 and provides for prospective change in estimate (henceforth). Standard
     20 has had no effect on the results of operations of the group companies,
     their financial condition and their cash flows, during the reported years.

     A gain from share issuance to a third party by a development stage investee
     company has been recorded as deferred income and charged to operations as
     other income, at the higher of: (i) straight-line amortization over three
     years; or (ii) the Company's share in loss of investee's on an aggregated
     basis.

     The decrease in the fair value of the investment in an autonomous investee
     is recorded, as from January 1, 2003 (effective date of Standard No. 15 -
     See item N. below), to the statement of operations, as incurred. Until
     December 31, 2002, a decline in value of an investment (other than
     temporary decline) was charged directly against any credit balance of
     foreign currency translation adjustments previously recorded in respect of
     that investment. The amount of the required provision in excess of the
     foreign currency translation adjustment was charged to operations.

H.   FIXED ASSETS

     (1)  The assets are stated at cost, net of related investment grants.

          Improvements and renovations are capitalized. Maintenance and repair
          expenses are charged to operations as incurred.

          Financial expenses in real (non-inflationary) terms, in respect of
          borrowings used for acquisition or construction (including the
          acquisition of the related land) as well as direct supervision and
          construction costs incurred in the pre-operating period, have been
          capitalized to the cost of the buildings. As for the capitalization of
          borrowing costs - See item R below.

          Fixed assets, acquired from controlling shareholders of the Company,
          are included according to their reported value (through December 31,
          2003 - adjusted value) in the books of the former, immediately prior
          to acquisition thereof.


                                      F-19
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

H.   FIXED ASSETS (CONT'D)

     (2)  Depreciation is calculated by the straight-line method at annual rates
          considered sufficient to depreciate the assets over their estimated
          useful lives. Leasehold improvements are amortized over the estimated
          useful period, which does not exceed the leasing period. Annual
          depreciation rates are as follows:

<TABLE>
<CAPTION>
                                                                  %
                                                              --------
<S>                                                      <C>
         Freehold Land                                           0.0
         Leasehold land                                  Over leasing period
         Hotels                                                1.1-1.5
         Commercial center                                       2.0
         Buildings                                            2.0 - 2.5
         Hotels and commercial center operating systems     7.0 (average)
         Other fixed assets (*)                               6.0-33.0
</TABLE>

          (*)  Furniture, equipment, leasehold improvements, vehicles, computers
               and peripheral equipment, electronic equipment, software, etc.

I.   OTHER ASSETS AND DEFERRED EXPENSES

     (1)  PRE-OPENING EXPENSES - mainly - employee training, testing of hotel
          systems and preparation of the hotel for opening, are stated at cost
          and are amortized over a three-year period from commencement of full
          scale operations.

     (2)  OPERATING COSTS RELATING TO INITIATION ACTIVITIES - prior to the
          finalization of the investment or land acquisition, etc. are
          capitalized as incurred, when an investment or a property acquisition
          transaction is reasonably foreseen, and are charged to the cost of the
          investment or the real estate project upon the investment or
          acquisition. In circumstances where execution of investment or
          transaction is not probable or when the expected economic benefit is
          doubtful, these costs are charged to operations.

     (3)  COSTS OF OBTAINING LOANS - includes costs related to refinancing
          loans, which in effect constitutes an extension of the previous loans
          (including costs deriving from early repayment of loans), are
          capitalized as incurred and are included in the statement of
          operations over the loans' period of benefit and in relation to their
          balance.

      (4) COST OF OBTAINING LONG-TERM LEASES - are capitalized as incurred and
          are charged to operations over the respective leases periods or on an
          average basis, as applicable. If a lease contract or a group of lease
          contracts are expected to be terminated or if their expected economic
          benefit is doubtful, these costs are charged directly to the
          statements of operations.


                                      F-20
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

J.   LONG-TERM RECEIVABLES AND LIABILITIES

     (1)  Long-term loans for a fixed period, which do not bear stated interest
          or bear interest at a rate lower than the market interest, when the
          difference between the nominal book value of the balances and their
          present value is material, are stated at present value (discounted at
          market interest rates in effect for similar loans). The effective
          interest is charged to operations over the term of the loan.

     (2)  Short-term supplier credit and other liabilities, as well as
          short-term bank borrowings used for establishing hotels and a
          commercial center and whose repayment sources are anchored in
          long-term financing agreements with financial institutions, have been
          included as long-term liabilities, with related repayment schedules
          included in accordance with those of the corresponding long-term
          loans, as stipulated in the relevant agreements with the financing
          institutions.

K.   INCOME TAXES

     Deferred taxes are calculated in respect of all temporary differences,
     including (i) differences between the timing of record of income and
     expenses in the financial statements and the recognition thereof for income
     tax purposes; (ii) differences between the reported value of non-monetary
     depreciable assets (through December 31, 2004 - excluding the adjustment
     component for buildings) and the amount deductible for income tax purposes
     (except for temporary differences generated upon initial recognition of
     goodwill and/or asset or liability, not in connection with a business
     combination and that which at the initial recognition thereof had no effect
     on the accounting or tax net income); (iii) tax losses and deductions that
     may be carried forward for future years or used against previous; and (iv)
     differences between fair value of identified assets and liabilities of
     subsidiaries upon acquisition of the investment therein (excluding assets,
     depreciation of which is not tax deductible), and tax base of same (value
     for tax purposes) at that date. Deferred Taxes have also been calculated in
     respect of temporary differences generated from the measurement currency in
     the financial statements being other than that according to which profit
     (loss) is determined for tax purposes (and accordingly, tax base of assets
     and liabilities).

     The calculation of tax liabilities (current and deferred) does not include
     taxes that would have arisen in the event of a realization of investments
     in investee companies (except those that are to be liquidated), or upon
     receiving their retained earnings as dividends, since, in respect of some,
     dividends from profits thereof and/or gains to be generated from their
     realization, are tax exempt, and in respect of others, it is management's
     policy not to realize and/or to declare dividend out of their retained
     earnings, or other form of profit distributions, in the foreseeable future,
     in a manner which entails additional substantial tax burden on the group,
     except for the effect of the Israeli tax laws that would apply to
     undistributed profits of foreign investee companies as from January 1, 2003
     - See Note 15B.(1)(b).

     A tax benefit is recorded as an asset, only when there is reasonable
     likelihood for its realization against future taxable income, or when
     sufficient taxable temporary differences, the timing of reverse of which
     does not precede the realization timing of the tax benefit, as aforestated,
     exist. Tax assets and liabilities (current and deferred), are calculated
     according to the tax rates and relevant laws expected to apply upon
     utilization thereof, as are in effect (or enactment thereof is practically
     completed) as at the balance sheet date. Current and deferred taxes
     relating to capital reserve from foreign currency translation adjustments
     or to other capital items are charged directly to the shareholders' equity.
     Deferred taxes deriving from changes in the tax rate (including those in
     respect of balances previously created on temporary differences within a
     business combination) are charged to the income tax item in the statement
     of operations, or in the capital reserve from foreign currency translation
     adjustments, as applicable.


                                      F-21
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

L.   EXCHANGE RATES AND LINKAGE BASES

     (1)  Assets and liabilities in foreign currency or linked thereto are
          stated on the basis of the exchange rate prevailing as at the
          balance-sheet date.

          Balances linked to various indices or security rates are stated on the
          basis of the relevant linkage terms of each linked asset or liability.

     (2)  Exchange rates of the NIS in relation to foreign currencies (NIS)
          are as follows:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                     ------------
                                                   2004       2003
                                                   ----       ----
<S>                                               <C>       <C>
         U.S. Dollar                               4.308     4.379
         Pound Sterling                            8.308     7.849
         Euro                                      5.877     5.533
         1000 Hungarian forint                    23.900    21.100
         1000 Romanian Lei                         0.148     0.135
</TABLE>


     (3)  Changes in the exchange rates of the NIS in relation to foreign
          currencies (%) are as follows:

                                                    YEAR ENDED DECEMBER 31,
                                                   2004       2003      2002

         U.S. Dollar                              (1.62)    (7.56)      7.27
         Pound sterling                            5.85      2.83      19.27
         Euro                                      6.21     11.33      27.18
         Hungarian forint                         13.25      0.16      32.82
         Romanian Lei                              9.63     (4.93)      1.43

M.   FINANCIAL INSTRUMENTS

     (1)  Financial instruments - See Note 22 below.

     (2)  Results of derivatives and financial instruments designated for
          hedging purposes of existing assets and liabilities, or against
          fluctuations in the exchange rates in which firm commitments are
          denominated, as well as those designated as a hedge against
          fluctuations of interest rates of variable-interest bearing loans, are
          charged to the statement of operations concurrently with the charging
          of the results from the hedged assets and liabilities and/or the
          realization of the relevant transaction and/or the charging of the
          interest according to the interest rate specified in the loan
          agreement, as applicable. Derivative financial instruments not
          designated for hedge purposes are presented at their estimated fair
          value. Changes in their fair value during the reported period are
          charged to the statement of operations.


                                      F-22
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

N.   IMPAIRMENT OF LONG-LIVED ASSETS AND INVESTMENTS

     Effective January 1, 2003, the Company applies henceforth Standard No.15
     ("Impairment of Assets") of the IASB. The standard sets forth the
     accounting treatment and method of presentation required in the event of
     asset impairment (including investments in associated companies), and also
     establishes that assets should not be presented in amounts exceeding the
     higher of their net selling price or their value in use based on discounted
     cash flows expected to be derived from the respective asset ("recoverable
     amount"). Standard No. 15 establishes that the recoverable amount must be
     assessed whenever indicators point to a possible impairment of an asset. An
     impairment of assets is recorded as a loss in the statement of operations.

     Until December 31, 2002, the Group companies had assessed the need for a
     computation of asset impairment based on the future cash flows expected
     from the holding and use of these assets in undiscounted values in
     accordance with accepted practice in Israel and based on US SFAS 121
     ("Accounting for the Impairment or Disposal of Long-Lived Assets").
     Impairment provision in respect of investments in investee companies,
     impairment was examined in accordance with Opinion No. 68 of the ICPAI.
     (See item G above).

O.   SHARE CAPITAL

     Company shares held by the Company, are presented at cost and deducted from
     share capital of the Company according to the "treasury stock" method.

     Loans granted to employees for purchasing Company shares which constitute
     the sole security for the loans' repayment, which shall be repaid out of
     proceeds of the sale thereof, are included in the balance sheet as a
     deduction from shareholders' equity.

P.   REVENUE RECOGNITION

     -    Revenue from hotel operations is recognized upon performance of the
          service.

     -    Revenue from rent, management fee and other income related to the
          operation of the commercial center are recognized over the rent period
          and/or the performance of the service.

     -    Revenues from operating lease (based on long term firm commitment for
          a fixed period), which are increased gradually over the lease term,
          are charged to operations by the straight line method over the period
          of the lease.

     -    Revenue from the sale of assemblies and sub-assemblies (included in
          discontinuing operation) was recognized upon shipment. Provisions for
          related product and systems warranties were calculateed on the basis
          of past experience.

Q.   CONTRACTUAL WORKS

     Revenues from contractual work - are reported by the "percentage of
     completion" method, in accordance with Standard No. 4 of the IASB. The
     completion rate determined by the proportion of the costs incurred to the
     total estimated cost, based on an evaluation made by the Company's
     engineers. The cost of long-term projects in progress includes direct costs
     and allocated indirect expenses.


                                      F-23
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

R.   CAPITALIZATION OF BORROWING COSTS

     Borrowing costs are capitalized in accordance with Standard No. 3 of the
     IASB. Accordingly, both specific and non-specific borrowing costs are
     capitalized to qualified assets (assets in preparation or under
     construction not yet in their designated use and whose preparation for this
     purpose requires a prolonged period of time). Non-specific borrowing costs
     are capitalized to these qualified assets or to that portion not financed
     by that specific borrowing, by using a rate constituting a weighted average
     of the costs in respect of the Company borrowings sources not specifically
     capitalized. Capitalization of borrowing costs on assets generally
     continues until the completion of all the activities necessary to prepare
     the asset for its designated use, except cases in which capitalization is
     suspended as a result of a prolonged interruption of the asset
     construction.

S.   EARNINGS (LOSS) PER SHARE

     Earnings (loss) per share is calculated in accordance with Opinion No. 55
     of the ICPAI based on the weighted - average number of paid-up shares
     outstanding during the year (net of treasury stock). The number of shares
     used for the computation of basic earnings (loss) per share take into
     account vested options or other rights to vested shares (including shares
     issued against loans,which the sole security for their repayment is the
     shares granted), in respect of which realization may reasonably be assumed.
     Fully diluted earnings (loss) per share take into account securities
     excluded from the basic earnings (loss) per share computation if their
     effect is dilutive. Net profit (loss) which has been taken into account in
     calculating diluted earnings per share has been deducted by the periodic
     change in the necessary provision, if any, assuming the full exercise of
     the Company's and/or investee company's securities not taken into account
     in the computation of basic earnings (loss) per share.

T.   USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires of Group companies' managements to
     make estimates and rely upon assumptions are assesments affecting the
     reported balance-sheet amounts of assets and liabilities, the disclosure of
     contingent assets and liabilities as at the balance sheet date, and the
     reported amounts of revenues and expenses during the reporting periods.
     Actual data and operating results may differ from these estimates.

U.   NEW ACCOUNTING STANDARDS

     In July 2004, Accounting Standard No. 19 - income taxes (Standard 19),
     published by the IASB, became final and valid. Standard 19 sets forth
     principles for recognition, measurement, presentation and disclosure of
     income taxes in financial statements. Standard 19 applies to financial
     statements for periods commencing on or after January 1, 2005. Initial
     implementation of Standard 19, mainly for the initial inclusion of deferred
     taxes in respect of adjustment component for land and buildings, will be
     included in the financial statements for the first quarter of 2005.


                                      F-24
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                              DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                      2004            2004            2003
                                              ------------    ------------    ------------
                                                                  REPORTED        ADJUSTED
                                                              ------------    ------------
                                          INTEREST RATE (%)          NIS (THOUSANDS)
                                          -----------------   ----------------------------
<S>                                       <C>                     <C>             <C>
In foreign currency:
 U.S. Dollar                                    0.8-1.8            19,123          55,762
 British Pound                                    4.0               3,997          30,017
 Euro                                           1.2-1.5            17,356           8,970
 Other                                          1.4-2.0             1,194           1,142
In NIS                                            1.8                 107           2,569
                                                                   ------          ------
                                                                   41,777          98,460
                                                                   ======          ======
</TABLE>

NOTE 4 - SHORT-TERM INVESTMENTS AND DEPOSITS

A.   CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                              DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                      2004            2004            2003
                                              ------------    ------------    ------------
                                                                  REPORTED        ADJUSTED
                                                                  --------        --------
                                          INTEREST RATE (%)          NIS (THOUSANDS)
                                          -----------------          ---------------
<S>                                       <C>                     <C>             <C>
     DEPOSITS WITH BANKS AND FINANCIAL
      INSTITUTIONS:

      In foreign currency:
       U.S. Dollar (i)                           1.2-1.9           133,301         139,209
       Euro                                        2.2              14,472           3,544
       British Pound                               3.0              17,895           8,971
       Romanian Lei                               13.0               2,445           2,221
      In NIS                                       2.1               5,576           5,872
                                                                  --------        ---------
                                                                   173,689         159,817
     MARKETABLE SECURITIES  (MAINLY DEBENTURES)                      1,335           2,561
                                                                  --------        ---------

                                                                   175,024         162,378
     CURRENT MATURITIES OF LONG TERM LOANS
      AND RECEIVABLES                                                4,155           2,193
                                                                  --------        ---------

                                                                   179,179         164,571
                                                                  =========       =========
</TABLE>

     (i)  NIS 112 million serves as security for a short-term loan.


B.   LIENS - See Note 16 D., below.


                                      F-25
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - ACCOUNTS RECEIVABLE - TRADE

<TABLE>
<CAPTION>
                                                 DECEMBER 31,   DECEMBER 31,
                                                         2004           2003
                                                         ----           ----
                                                     REPORTED       ADJUSTED
                                                     --------       --------
                                                       NIS (THOUSANDS)
                                                 ---------------------------
<S>                                              <C>            <C>
 Outstanding accounts                               26,177         23,708
 Less - allowance for doubtful debts                (8,968)        (6,289)
                                                 ---------      ---------
                                                    17,209         17,419
                                                 =========      =========
</TABLE>


NOTE 6 - RECEIVABLES AND OTHER DEBIT BALANCES

<TABLE>
<CAPTION>
                                                 DECEMBER 31,   DECEMBER 31,
                                                         2004           2003
                                                         ----           ----
                                                     REPORTED       ADJUSTED
                                                     --------       --------
                                                       NIS (THOUSANDS)
                                                 ---------------------------
<S>                                              <C>            <C>

 Israeli and foreign governmental institutions         4,069         14,912
 Prepaid expenses                                      3,439          5,868
 Employees                                               597            444
 Control centers group companies                       2,449          3,945
 Others                                                5,702          5,263
                                                       -----          -----
                                                      16,256         30,432
                                                      ======         ======
</TABLE>


NOTE 7 - DEPOSITS, LOANS AND LONG-TERM RECEIVABLES

A.   CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,   DECEMBER 31,
                                                                     2004           2003
                                                                     ----           ----
                                                                 REPORTED       ADJUSTED
                                                                 --------       --------
                                                                   NIS (THOUSANDS)
                                                             ---------------------------
<S>                                                          <C>            <C>
     Deposits with banks (1)                                     5,859             6,711
     Loans to interest holders in investee companies (2)        24,655            24,723
     Loan to a former associated company (3)                    17,806            15,340
     Loans to anchor tenants (4)                                 4,383             5,042
     Loans to venture capital companies (5)                      1,232             1,191
     Receivables in respect of long-term lease agreement (6)    11,107             5,184
     Others                                                        654             1,086
                                                                ------           -------
                                                                65,696            59,277
     Less - allowance for doubtful debts                       (21,549)          (17,583)
                                                               -------           -------
                                                                44,147            41,694
     Less - current maturities                                  (4,155)           (2,193)
                                                                ------            ------
                                                                39,992            39,501
                                                                ======            ======
</TABLE>


                                      F-26
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - DEPOSITS, LOANS AND LONG-TERM RECEIVABLES (CONT'D)

A.   CONSIST OF THE FOLLOWING (CONT'D):

     (1)  Including a deposit of E0.9 million (NIS 5.3 million) bearing annual
          interest at a rate of 1.95% is pledged as security for a guarantee
          provided by a foreign bank in favour of a supplier.

     (2)  Loans to the Management Company or to its controlled companies (see
          Note 8B.(b) below). A loan of NIS 7.2 million is linked to the US
          dollar, bears annual interest at a rate of Libor+1%, due and payable
          on December 31, 2006. A loan of NIS 14.3 million may be converted into
          shares - see Note 16A.(2) below. Should BEA Hotels N.V. (B.H.) decide
          not to exercise its option to convert the loan into shares, the loan
          would then be subject to the linkage and interest terms outlined
          above. The amounts to be received by the Management Company from the
          Group companies in respect of the former's interest in hotels owned by
          the latter (other than hotel management fees - see Note 16A.(1)(a) and
          (b) below) will be used as security for the repayment of the loans. A
          loan of NIS 0.9 million linked to the US Dollar and bears annual
          interest at a rate of 9% as well as a loan of NIS 2.2 million linked
          to the EURO and bears annual interest at a rate of 4.9%. B.H. received
          no security for these loans.

     (3)  Linked to the Israeli CPI, unsecured and bears no interest.

     (4)  Linked, mainly, to the US Dollar, bears annual interest of Libor +
          1.5% to 2.5%.

     (5)  Loans to companies engaged in the biotechnology field, linked to the
          US Dollar, bears annual interest at customary commercial rates and are
          convertible into shares of the lender, under certain condition as
          stipulated in the agreements.

     (6)  See Notes 2P. above and 16A.(5) below.

B.   REPAYMENT DATES:

<TABLE>
<CAPTION>
                                           DECEMBER 31,
                                               2004
                                               ----
                                           REPORTED NIS
                                           (THOUSANDS)
                                           -----------
<S>                                        <C>
      2005-current maturities                  4,155
      2006                                     4,617
      2007                                     1,276
      2008                                       375
      2009 and thereafter                     11,182
      Undetermined                            22,542
                                              ------
                                              44,147
                                              ======
</TABLE>

C.   LIENS  - see Note 16 D., below.


                                      F-27
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - INVESTMENTS IN INVESTEE COMPANIES AND OTHERS

A.   CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                 DECEMBER 31,   DECEMBER 31,
                                                         2004           2003
                                                         ----           ----
                                                     REPORTED       ADJUSTED
                                                     --------       --------
                                                       NIS (THOUSANDS)
                                                 ---------------------------
<S>                                              <C>            <C>
    ASSOCIATED COMPANY (1):
     Cost of shares (*)                                35,065        35,065
     Accumulated losses, net                          (16,477)       (9,866)
     Foreign currency translations adjustments         (1,009)         (859)
                                                      -------       -------
                                                       17,579        24,340
    INVESTMENT IN EMI STOCKS (2)                       23,857        40,290
                                                      -------       -------
                                                       41,436        64,630
                                                      =======       =======
</TABLE>

     (*)  Including - goodwill:

<TABLE>
<CAPTION>
                                    COST          NET BOOK VALUE
                                    ----          --------------
                     AMORTIZATION             DECEMBER 31,
                       RATE (I)       2004         2004       2003
                       --------       ----         ----       ----
                          %                 NIS (THOUSANDS)
                          -                 ---------------
                                         REPORTED          ADJUSTED
                                         --------          --------
<S>                                  <C>          <C>        <C>
                          10         14,345       11,304      12,957
                                     =======      =======     =======
</TABLE>

          (i)  See also Note 2 G, above.

(1)  VENTURE CAPITAL INVESTMENTS

          A.   GENERAL

               The Company invests in hi-tech associated company (initially
               through owned venture capital fund - "Invested Company"). The
               Invested Company engages in research and development operations
               and have not yet attained financial stability. The value of the
               investment is thus contingent upon the continued operation of the
               Invested Company, which entails certain risks stemming from the
               nature of their operations including the uncertainty as to the
               success of development and marketing potential of the product. It
               is therefore, difficult to objectively assess the fair value of
               the investment due to the lack of a verifiable market-value.
               Nevertheless, the Company's management is of the opinion that the
               fair value of the investment is not lower than its cost.

               As to a law-suit filed by an employee of EIL - see Note 16B.(7)
               below.


                                      F-28
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8 - INVESTMENTS IN INVESTEE COMPANIES AND OTHERS (CONT'D)

A.   CONSIST OF THE FOLLOWING (CONT'D):

     (1)  VENTURE CAPITAL INVESTMENTS (CONT'D)

          B.   GAMIDA CELL LTD. ("GAMIDA") (THROUGH ELSCINT BIOMEDICAL LTD.)

               Gamida is engaged in the expansion of hematopoietic (blood) stem
               cells therapeutics in clinical development for cancer and
               autoimmune diseases, as well as future regenerative cell-based
               medicines including cardiac and pancreatic repair.

               The Company held, as of December 31, 2004, 33.3% of the equity
               and voting rights in Gamida and the right to appoint 25% of its
               directors. The shares held by the Company are in part ordinary
               shares and in part preferred shares having anti-dilution and
               liquidation preference rights (US dollar linked return of its
               investment in Gamida bearing 8% annual interest, prior to any
               distribution to ordinary shareholders or holders of preferred
               shares with subordinated rights). The Company holds an option,
               exercisable up to April 2005, to receive additional 0.7% in
               consideration of $0.2 million. Should all of convertible
               securities of Gamida be so converted (or exercised), then and in
               such event, the Company shall be diluted to holdings of 29.2%.

               In May 2003 Gamida signed an agreement with Teva Pharmaceutical
               Industries Ltd. ("Teva"), in the framework of which Teva invested
               $3.0 million in Gamida for an allotment of shares representing 9%
               of Gamida's fully diluted share capital.

               Gamida also signed a memorandum of understanding with Teva,
               granting Teva an option for future cooperation with Gamida in
               respect of certain products being the subject matter of Gamida's
               developing technology ("the products"), and subject to agreed
               upon conditions. On February 16, 2005, Teva informed Gamida as to
               its decision to exercise the aforementioned option through
               establishment of a joint venture (JV) through which Teva shall
               invest, subject to completion of the transaction and the
               execution of a detailed agreement between the parties, up to
               $25.0 million (in installments subject to achieving various
               agreed upon milestones), in order to achieve completion of
               product development, manufacturing and commercialization. Gamida
               has granted to the JV, within the framework of the memorandum of
               understanding, a sole and an exclusive worldwide license to
               develop, manufacture and use the technology and other
               intellectual properties related to the products. Gamida has also
               granted Teva the right of First Look with respect to any and all
               Gamida's development and/or invention not in the framework of the
               JV. Other amounts, to the extent required, in order to finance
               the completion of JV's objectives, shall be provided in equal
               parts, by Teva and Gamida. Closing of the transaction and the
               execution of a definitive agreement are expected to be carried
               out by mid 2005.

               Elscint Bio Medical Ltd. ("Bio") was bound by agreements with a
               company controlled by its former CEO (the "CEO"), entitling the
               CEO to shares representing 2% of Bio's issued and paid-up
               capital, in consideration for their nominal value. It was also
               provided that venture capital investments of Bio would be carried
               out such that Bio would invest 92% and the CEO - 8%, and that for
               the purpose of financing the CEO's investment, Bio would grant
               him a dollar-linked non-recourse loan bearing LIBOR+1% interest.
               It was further provided that should this agreement (or another
               agreement between them for the provision of consulting services)
               be canceled, Bio would be entitled, according to the conditions
               specified in the agreement, to acquire all or any of the CEO's
               holdings in the venture capital investments and in Bio at cost
               and/or at market value, as relevant (depending on the purchase
               date).



                                      F-29
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8 - INVESTMENTS IN INVESTEE COMPANIES AND OTHERS (CONT'D)

A.   CONSIST OF THE FOLLOWING (CONT'D):

     (1)  VENTURE CAPITAL INVESTMENTS (CONT'D)

          B.   GAMIDA CELL LTD. (GAMIDA) (THROUGH ELSCINT BIOMEDICAL LTD.)
               (CONT'D):

               In the fourth quarter of 2002, Bio and the CEO terminated the
               employment agreement then existed between them. Further to the
               termination of the agreement, Bio transferred to itself the CEO's
               rights in Bio and in the venture capital investments, as payment
               for the loans, which it had provided to the CEO for acquisition
               thereof. A dispute arose between the parties, with the CEO
               contending that Bio had lost its right to acquire his holdings,
               as aforesaid, since the deadline according to the agreement for
               giving notice of its intention in this regard had expired. Bio's
               management disputes this contention and is acting to realize its
               rights under the agreement. The parties have not yet signed a
               full and final agreement for the waiver and/or settlement of
               their mutual claims. The Company's management estimates that it
               will not incur significant costs from the termination of the
               agreements, beyond those reflected in the financial statements.

               Concurrently with the termination of the employment agreement,
               the Company's management has suspended execution of additional
               investments in the biotechnology field through Bio. As a result,
               the Company's management estimates based on the present scope and
               nature of its activity, that Bio at this stage has lost its
               status as a venture capital fund. Accordingly, Bio's investment
               in Gamida is classified as and from that date as an investment in
               an associated company.

     (2)  524,187 ordinary shares (approximately 2.4% of EMI's fully diluted
          share capital) which are presented at cost. The fair value of EMI
          stocks held by the Company, based on their market value as of December
          31, 2004, totaled to NIS 20.8 million. As for partial realization of
          EMI stocks during 2004, see Note 18 I. (1) (ii), below.

B.   SUPPLEMENTAL INFORMATION AS TO COMPAMIES IN BEA HOTELS N.V. ("B.H.") GROUP

     (A)  Thirty-five percent (35%) of the share capital of SHH (the company
          holding the ownership interest in the Shaw Hotel in London) is held by
          B.H., with another 35% being held by the Red Sea Hotels Group ("RSG"),
          and the balance (30%) - by another corporation (the "Shareholders").
          The Shareholders and the companies controlled thereby are bound by an
          agreement in terms of which, inter alia, terms and conditions of
          holding in and to the SHH shares, are regularized (including voting
          rights and rights to appoint directors).

          Park Plaza Hotels Europe BV ("the Management Company"), B.H. and RSG,
          are bound by a methodology in terms of which the Management Company is
          entitled to receive 10% of "free funds for distribution" in excess of
          10% of all shareholders' investments (10% of shareholders loans
          (principal) with the addition of 8% annual interest accrued thereon).
          The Management Company will also be entitled to all economic and other
          rights and benefits ("beneficial rights") pertaining to 10% of the
          rights deriving from all issued and outstanding shares of SHH, which
          are to be jointly held on its behalf, by B.H. and RSG. The legal
          rights attached to the shares as well as voting rights therein will be
          retained by the registered shareholders. The effective shareholding of
          B.H in SHH amounts therefore to 30%. The Management Company is
          entitled at any time to request the conversion of its beneficial
          rights into shares with identical rights to those held by the
          registered shareholders, subject to the investment of its
          proportionate share in SHH, the consent of all shareholders of SHH and
          that of the Hotel's financing banks.



                                      F-30
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8 - INVESTMENTS IN INVESTEE COMPANIES AND OTHERS (CONT'D)

B.   SUPPLEMENTAL INFORMATION AS TO COMPAMIES IN BEA HOTELS N.V. ("B.H.") GROUP
     (CONT'D)

     (B)  The Management Company is vested, in addition, with ownership rights
          at a respective rate of 5%-10% (excluding voting rights) in several
          corporations, which are held by B.H. jointly with RSG.

     (C)  B.H. holds, through a wholly owned and controlled subsidiary,
          incorporated in Romania ("Domino") - approximately 70% of SC Bucuresti
          Turism S.A. ("Bucuresti") which in turn owns a complex consisting of a
          hotel, an apartment hotel, commercial areas and a restaurant, situated
          in the heart of Bucharest, Romania ("the Bucuresti Complex").
          Bucuresti was purchased through a privatization tender published by
          the State Ownership Fund of the Romanian government ("SOF"). The
          tender procedure was approved by a decision of the Supreme Court of
          Romania.

          The acquisition of most of the rights in Bucuresti was carried out
          within the framework of a memorandum of understanding ("MOU") for the
          establishment of a joint venture, 80% of the rights of which were to
          be held by B.H. and 20% of the rights by an unrelated third party
          ("Third Party Shareholder"). Based on the terms of the MOU, B.H. is
          entitled to receive 100% of Domino's profits to be distributed as
          dividends up to an aggregate amount of $2.0 million. Income in excess
          of such amount is to be distributed according to holdings ratio (80%:
          20%). In addition, B.H. has a Put Option to oblige the Third Party
          Shareholder to increase its interest from 20% up to 50% (based in full
          investment cost) for period and in terms to be agreed upon by the
          parties. The parties undertook to finance the renovation of the hotel,
          should same be required. Should one of the parties fail to provide the
          financing pro rate to its share, holdings thereof will be diluted
          based on a methodology to be agreed upon.

          As a result of a breach of agreements and undertakings by the Third
          Party Shareholder, B.H. announced the termination of all agreements
          and simultaneously filed, together with its subsidiary a law-suit
          against the Third Party shareholder for all damages incurred thereby
          due to the latter's breach of contracts and undertakings. B.H.
          withheld, prior to filing the claim, the Third Party Shareholder's
          shares as security for fulfillment of its undertakings. As a result of
          the agreements' termination and the filing of the lawsuit, the Company
          believes, based on legal advice, that it is no longer required to
          transfer said shares, which follows that B.H., is in effect the holder
          of the entire share capital and voting rights (indirectly) in Domino.

          B.H. filed a monetary claim against the Third Party Shareholder for
          noncompliance with the indemnity conditions, in the framework of which
          attachments were imposed on the Third Party assets. In February 2003,
          the Third Party Shareholder filed a statement of defense against the
          suit. Mediation proceeding between the parties failed, and a notice to
          that effect was filed by B.H. in January 2005 to the competent court,
          accompanied by a request to schedule a preliminary hearing. Such
          hearing is yet to be scheduled.

          For information concerning legal actions filed in connection with the
          purchase and ownership of Bucuresti shares, and the real estate owned
          thereby- See Note 16B.(4), below.

          Bucuresti shares are traded on the Romanian stock exchange. The value
          of B.H.'s holdings in Bucuresti shares, based on the price of a
          Bucuresti share as of December 31, 2004, amounts to NIS 23.4 million,
          and their book value as of that date amount to NIS 234.0 million.




                                      F-31
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8 - INVESTMENTS IN INVESTEE COMPANIES AND OTHERS (CONT'D)

C.   THE FOLLOWING IS SUMMARIZED DATA OUTLINING THE GROUP'S SHARE IN ITEMS OF
     THE PROPORTIONATELY CONSOLIDATED SUBSIDIARIES' FINANCIAL STATEMENTS.

     AT DECEMBER 31, 2004 AND FOR THE YEAR THEN ENDED:

<TABLE>
<CAPTION>
                                                       PROPORTIONATELY CONSOLIDATED SUBSIDIARIES
                                                 ----------------------------------------------------
                                                     50%          33.3%          30%          TOTAL
                                                 ----------    ----------    ----------    ----------
                                                               REPORTED NIS (THOUSANDS)
                                                 ----------------------------------------------------
<S>                                              <C>           <C>           <C>           <C>
     Current assets                                  46,041           782         4,479        51,302
     Fixed assets and other assets                  883,280         4,520       117,828     1,005,628
     Deposits, loans and long-term receivables        2,207           735        11,104        14,046
     Current liabilities                           (244,347)         (776)       (4,102)     (249,225)
     Long-term liabilities                         (469,106)       (4,781)     (151,164)     (625,051)
                                                 ----------    ----------    ----------    ----------
                                                    218,075           480       (21,855)      196,700
                                                 ==========    ==========    ==========    ==========
     Liabilities to (of) Group companies            208,656        11,413       (14,674)      205,395
     Shareholders' equity (deficiency)                9,419       (10,933)       (7,181)       (8,695)
                                                 ----------    ----------    ----------    ----------
                                                    218,075           480       (21,855)      196,700
                                                 ==========    ==========    ==========    ==========
     Revenues                                       134,560         2,080        13,241       149,881
                                                 ==========    ==========    ==========    ==========
     Gross profit                                    59,946           632        10,109        70,687
                                                 ==========    ==========    ==========    ==========
     Operating income                                26,147           337        10,104        36,588
                                                 ==========    ==========    ==========    ==========
     Net profit (loss)                               (2,451)          496         1,505          (450)
                                                 ==========    ==========    ==========    ==========
</TABLE>

     AT DECEMBER 31, 2003 AND FOR THE YEAR THEN ENDED:

<TABLE>
<CAPTION>
                                                   PROPORTIONATELY CONSOLIDATED SUBSIDIARIES
                                                 --------------------------------------------
                                                    50%        33.3%        35%        TOTAL
                                                 --------    --------    --------    --------
                                                           ADJUSTED NIS (THOUSANDS)
                                                 --------------------------------------------
<S>                                              <C>         <C>         <C>         <C>
     Current assets                                33,618         466       4,349      38,433
     Fixed assets and other assets                704,948       3,851     113,736     822,535
     Deposits, loans and long-term receivables      1,978         747       5,388       8,113
     Current liabilities                         (261,392)       (311)     (2,892)   (264,595)
     Long-term liabilities                       (255,511)     (4,275)   (142,824)   (402,610)
                                                 --------    --------    --------    --------
                                                  223,641         478     (22,243)    201,876
                                                 ========    ========    ========    ========
     Liabilities to (of) Group companies          215,376      10,579     (14,049)    211,906
     Shareholders' equity (deficiency)              8,265     (10,101)     (8,194)    (10,030)
                                                 --------    --------    --------    --------
                                                  223,641         478     (22,243)    201,876
                                                 ========    ========    ========    ========
     Revenues                                     121,985       1,783      13,578     137,346
                                                 ========    ========    ========    ========
     Gross profit                                  48,435         538       9,246      58,219
                                                 ========    ========    ========    ========
     Operating income                              16,391         228       8,980      25,599
                                                 ========    ========    ========    ========
     Net profit (loss)                               (381)         64       4,330       4,013
                                                 ========    ========    ========    ========
</TABLE>



                                      F-32
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - FIXED ASSETS

A. CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                         -------------------------------------------------------------------------------------------
                                                                              2004                                           2003
                                         -------------------------------------------------------------------------------  ----------
                                                             REAL ESTATE
                                         ----------------------------------------------------
                                                                    COMMERCIAL
                                                   HOTELS             CENTER
                                         -------------------------  -----------
                                                         UNDER                                  OTHER FIXED
                                         ACTIVE (I)   CONSTRUCTION    ACTIVE        OTHERS        ASSETS        TOTAL        TOTAL
                                         -----------  ------------  -----------   -----------   -----------   ----------  ----------
                                                                               NIS (THOUSANDS)
                                         -------------------------------------------------------------------------------------------
                                                                             REPORTED                                      ADJUSTED
                                         -------------------------------------------------------------------------------  ----------
<S>                                      <C>          <C>           <C>           <C>           <C>           <C>         <C>
COST
Balance as at January 1 (adjusted)        1,143,604       453,345      655,045        32,478         7,075    2,291,547   1,793,157
Adjustments from translation of foreign
 subsidiaries' financial statements          80,813        44,384           --            --            --      125,197     142,375
Additions during the year                     9,512       151,534       24,713            --           257      186,016     384,272
Decrease in holding of a proportional
 consolidated subsidiary                         --            --           --            --            --           --     (20,451)
Disposals during the year                    (2,703)           --      (11,505)      (23,828)         (356)     (38,392)     (7,806)
                                         ----------    ----------   ----------    ----------    ----------    ---------   ---------
BALANCE AS AT DECEMBER 31 (REPORTED)      1,231,226       649,263      668,253         8,650         6,976    2,564,368   2,291,547
                                         ----------    ----------   ----------    ----------    ----------    ---------   ---------

ACCUMULATED DEPRECIATION
Balance as at January 1  (adjusted)         160,015        38,433       11,670         2,590         2,311      215,019     159,337
Adjustments from translation of foreign
 subsidiaries' financial statements          13,654         5,474           --            --            --       19,128      19,152
Additions during the year                    36,986            --       31,078           228           786       69,078      43,624
Decrease in holding of a proportional
 consolidated subsidiary                         --            --           --            --            --           --      (1,946)
Disposals during the year                    (2,312)           --       (2,205)       (2,818)         (216)      (7,551)     (5,148)
                                         ----------    ----------   ----------    ----------    ----------    ---------   ---------
BALANCE AS AT DECEMBER 31 (REPORTED)        208,343        43,907       40,543            --         2,881      295,674     215,019
                                         ----------    ----------   ----------    ----------    ----------    ---------   ---------

IMPAIRMENT (SEE C. BELOW)                    62,252            --       14,600         6,517            --       83,369      73,101
                                         ----------    ----------   ----------    ----------    ----------    ---------   ---------

NET BOOK VALUE:
DECEMBER 31, 2004                           960,631       605,356      613,110         2,133         4,095    2,185,325
                                         ==========    ==========   ==========    ==========    ==========    =========
December 31, 2003                           931,605       414,912      628,765        23,381         4,764    2,003,427   2,003,427
                                         ==========    ==========   ==========    ==========    ==========    =========   =========
</TABLE>

(i) Includes a hotel in London leased for 25 years.




                                      F-33
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - FIXED ASSETS (CONT'D)

A.   CONSIST OF THE FOLLOWING (CONT'D):

<TABLE>
<CAPTION>
                                                                       NET BOOK VALUE AS OF
                                                                  ------------------------------
                                                                  DECEMBER 31,      DECEMBER 31,
                                                                      2004              2003
                                                                  ------------      ------------
                                                                     REPORTED         ADJUSTED
                                                                  ------------      ------------
                                                                         NIS (THOUSANDS)
                                                                  ------------------------------
<S>                                                               <C>               <C>
       Finance expenses capitalized to cost of land and building     119,207           95,482
                                                                     =======           ======
</TABLE>

B.   COMPOSITION OF LANDS AND BUILDINGS (NET BOOK VALUE), DISTINGUISHED BETWEEN
     FREEHOLD AND LEASEHOLD RIGHTS:

<TABLE>
<CAPTION>
                                                DECEMBER 31, 2004
                          --------------------------------------------------------------
                                                    COMMERCIAL
                                  HOTELS              CENTER
                          ------------------------  ----------
                                         UNDER
                            ACTIVE    CONSTRUCTION    ACTIVE       OTHERS       TOTAL
                          ----------  ------------  ----------   ----------   ----------
                                             REPORTED NIS (THOUSANDS)
                          --------------------------------------------------------------
<S>                       <C>         <C>           <C>          <C>          <C>
     Freehold rights(1)      847,273      219,827           --           --    1,067,100
     Leasehold rights:
      Capitalized          (2)30,917           --   (5)613,110        2,133      646,160
      Uncapitalized        (3)82,441   (4)385,529           --           --      467,970
                          ----------   ----------   ----------   ----------   ----------

                             960,631      605,356      613,110        2,133    2,181,230
                          ==========   ==========   ==========   ==========   ==========
</TABLE>

     (1)  Majority of the rights are mostly registered in the name of those
          consolidated subsidiaries, which own the rights thereto.

     (2)  Leasehold rights (capitalized for a 50-year period until 2036) of the
          land area, on which the Utrecht Park Plaza Hotel is situated, were
          acquired from the municipality of Utrecht. The execution of any change
          in the use of the land or the demolition of a building constructed
          thereon requires the consent of the municipality. The lessee has no
          rights of leasehold termination. The municipality has the right to
          terminate the leasehold rights should it determine that the land is
          required for public use or in the event a court determiness that the
          lessee failed to fulfill its undertakings under the terms of the
          lease.

     (3)  The sub-lease rights, of the Sherlock Holmes Park Plaza Hotel, are for
          a period of 99 years (through 2095), in exchange for an annual fixed
          amount. The average annual rent payments for the years 2005 and 2006
          are L0.6 million. The rent payments are adjusted every five years on
          the basis of "open market value". First such adjustment is to be
          carried out in October 2006. The company holding the property has an
          option to terminate the lease in 2059 with an advance notice of 2.5
          years.

          A Red Sea Group company ("guarantor") guaranteed fulfillment of all
          undertakings of the lessee as if it was a principal party to the
          agreement. The guarantee contains a provision, by which, in the event
          the guarantee is exercised, the land-owners may require the guarantor
          to assume the lessee's position as a lessee. Two documents were
          executed between the guarantor and B.H., which establish the
          indemnification procedures amongst them, in relation to said
          guarantee.



                                      F-34
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 9 - FIXED ASSETS (CONT'D)

B.   COMPOSITION OF LANDS AND BUILDINGS (NET BOOK VALUE), DISTINGUISHED BETWEEN
     FREEHOLD AND LEASEHOLD RIGHTS (CONT'D):

     (4)  The leasehold rights to a land area on which the Riverbank Park Plaza
          Hotel is located, are for a period of 125 years, in consideration for
          annual payment of L0.5 million, adjusted every five years based on the
          CPI in England. First such adjustment to be carried out in May 2005.
          The leasehold is subject to various previous rights exists on this
          property, as well as easements granted to certain authorities,
          contingent upon which the leasing of the property had been carried
          out. The lessee may not assign its rights to a third party without the
          lessor's consent. Should the lessee breache any of its undertakings
          under the agreement, then the lessor would have a right of forfeiture
          of the property, all as stipulated in the lease agreement.

     (5)  Capitalized lease rights in respect of the Arena commercial and
          intertaiment center ("Arena") are for a period of 49 years with an
          option for an additional 49 year lease period. The option period will
          expire in 2086, subject to the lessee's compliance with the terms of
          the lease.

C.   IMPAIRMENT OF LONG-LIVED ASSETS

     Repeated delays in the execution of infrastructure works by the Belgian
     authorities in the vicinity of the hotel owned by a Belgian subsidiary,
     which are beyond its control, are having an adverse effect on its activity
     and on the operation of the Aquatopia, which is located in the hotel site.
     In addition, repair works of certain material flaws in the operation of
     centralized systems, discovered upon the operation of the Aquatopia and
     which materially and adversely affect its scope of activity, may take a
     prolonged time to complete. In light of these delays the Company deemed it
     necessary to re-examine the book value of its investment in the hotel and
     Aquatopia. As a result of this examination, the Company included in its
     financial statements for 2004, a provision for the adjustment of the value
     of the investment to its fair value, which amounts to NIS 10.5 million.

D.   ANNUAL DEPRECIATION RATES - See Note 2 H., above.

     In March 2004, the Company was furnished, per its request, with an opinion
     by a civil engineering firm in London, according to which the remaining
     economic useful life of two hotels owned thereby, which are located in
     London, is substantially longer than that which the group previously
     ascribed thereto (67 years). According to the said opinion, economic
     benefit period is no shorter period than 95 years. The group therefore, as
     and from January 1, 2004, depreciates the balance of such assets'
     depreciated cost as of December 31, 2003, over a 95-year period.
     Consequently depreciation costs for the year ended on December 31, 2004,
     have decreased by NIS 0.7 million.

E.   PLEDGING - See Note 16 D., below.




                                      F-35
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10 - OTHER ASSETS AND DEFERRED EXPENSES

A.   CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,  DECEMBER 31,
                                                             2004          2003
                                                         ------------  ------------
                                                           REPORTED      ADJUSTED
                                                         ------------  ------------
                                                              NIS (THOUSANDS)
                                                         --------------------------
<S>                                                      <C>           <C>
    COST
    Hotels' pre-opening expenses                            19,055        12,522
    Cost of obtaining long-term leases                       8,023         7,637
    Expenses for obtaining loans                             6,465         2,644
    Project initiation costs                                 1,034         3,741
                                                            ------        ------
                                                            34,577        26,544
                                                            ------        ------
    ACCUMULATED AMORTIZATION
    Hotels' pre-opening expenses                            15,540         8,137
    Cost of obtaining long-term leases                       6,178         3,690
    Expenses for obtaining loans                               210            60
    Project initiation costs                                    --         3,741
                                                            ------        ------

                                                            21,928        15,628
                                                            ------        ------

    NET BOOK VALUE                                          12,649        10,916
                                                            ======        ======
</TABLE>


B.   DEPRECIATION RATES- See Note 2 I., above.



NOTE 11 - SHORT-TERM CREDITS

A.   CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                              DECEMBER 31,    DECEMBER 31,   DECEMBER 31,
                                                  2004            2004           2003
                                           -----------------  ------------   ------------
                                                                REPORTED       ADJUSTED
                                                              ------------   ------------
                                           INTEREST RATE (%)       NIS (THOUSANDS)
                                           -----------------  ---------------------------
<S>                                        <C>                <C>            <C>
    SHORT-TERM BANK LOANS:
       In U.S. Dollar                      Libor + 1.0 - 2.5    119,040        158,176
       In Pound sterling                   Libor + 2.9            1,394         38,875
       In Euro                             Libor + 2.9            3,840          1,715
       In NIS                              Prime + 1.1              891            950
                                                                -------        -------
                                                                125,165        199,716
    Current maturities of long-term debts                        10,264        207,883
                                                                -------        -------

                                                                135,429        407,599
                                                                =======        =======
</TABLE>


B.   SECURITIES - See Note 16 D., below.




                                      F-36
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12 - PAYABLES AND OTHER CREDIT BALANCES

<TABLE>
<CAPTION>
                                                        DECEMBER 31,   DECEMBER 31,
                                                            2004           2003
                                                        ------------   ------------
                                                          REPORTED       ADJUSTED
                                                        ------------   ------------
                                                              NIS (THOUSANDS)
                                                        ---------------------------
<S>                                                     <C>            <C>
Government institutions                                     9,379         10,594
Salaries and related expenses                              12,228         12,318
Accrued interest                                            2,142          3,612
Income in advance                                           3,604          3,017
Control Centers group companies                               331          1,861
Accrued expenses, comissions and others                    28,673         45,553
                                                           ------         ------
                                                           56,357         76,955
                                                           ======         ======
</TABLE>


NOTE 13 - LONG-TERM LIABILITIES

A.   CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,    DECEMBER 31,
                                                               2004            2003
                                                            ------------    ------------
                                                             REPORTED        ADJUSTED
                                                            ------------    ------------
                                                                  NIS (THOUSANDS)
                                                            ----------------------------
<S>                                                         <C>             <C>
     LOANS:
     From banks and financial institutions                   1,322,836       1,044,242
     Less current maturities                                   (10,264)       (207,883)
                                                            ----------      ----------
                                                             1,312,572         836,359
                                                            ----------      ----------
     OTHER LIABILITIES:
     Deferred income taxes                                       9,186          10,133
     Rent income in advance                                      3,582           3,510
     Liability for employee severance benefits, net (i)            463             468
                                                            ----------      ----------
                                                                13,231          14,111
                                                            ----------      ----------

                                                             1,325,803         850,470
                                                            ==========      ==========
</TABLE>

     (i)    See Note 14 below.

B.   LINKAGE BASIS AND INTEREST RATES OF LONG TERMS LOANS:

<TABLE>
<CAPTION>
                                                       DECEMBER 31, 2004
                                                --------------------------------
                                                                    REPORTED NIS
     LINKAGE BASE                               INTEREST RATES (%)   (THOUSANDS)
     ------------                               ------------------  ------------
<S>                                             <C>                 <C>
     Euro                                              Libor + 2.9      206,146
     Euro (*)                                                  5.1      211,054
     Pound Sterling                              Libor + 1.4 - 2.9      550,331
     Pound Sterling (*)                                        5.8      151,809
     US Dollar                                   Libor + 2.5 - 2.9      189,913
     NIS                                               Prime + 2.2        8,642
     S.A. Rand                                         Prime + 1.0        4,941
                                                                      ---------
                                                                      1,322,836
                                                                      =========
</TABLE>

     (*)  The interests on these loans are hedged by swap transactions - See
          Note 22 A., below.



                                      F-37
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - LONG-TERM LIABILITIES (CONT'D)

C.   REPAYMENT DATES:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                        2004
                                                                    ------------
                                                                    REPORTED NIS
                                                                    (THOUSANDS)
                                                                    ------------
<S>                                                                 <C>
    First year - current maturities                                     10,264
    Secont year                                                        692,252
    Third year                                                          17,195
    Fourth year                                                         18,553
    Fifth year                                                         216,256
    Six year and thereafter                                            368,316
                                                                     ---------
                                                                     1,322,836
                                                                     =========
</TABLE>

D.   Bank loans include loans granted to the Company from an Israeli bank
     totaling NIS 294.5 million, for the security of which the Company
     undertook, among other things, to provide certain additional collaterals in
     favor of the bank (see Note 16D.(1), below). The bank has informed the
     Company of its principal consent to reschedule the repayment of the
     aforementioned loans for a period of 10 years, and all subject to the
     furnishing by the Company of additional agreed upon securities as well as
     the execution of detailed agreements between the parties. The Company's
     management estimates, based on such understandings, that subject to its
     provision of such securities, the balance of the loan will be rescheduled
     for a long term period. The bank has informed the Company in writing, that
     it does not intend to demand repayment of the loans prior to January 1,
     2006. The bank has also informed the Company that in any event of a full or
     partial sale, issuance or a refinancing by the Company, or in any other
     event constituting a trigger event, occurring prior to January 1, 2006, a
     repayment of a certain amount , as agreed upon by and between the parties
     or failing such agreement - as determined by the bank, is to be executed.

E.   Within the framework of agreements for the receipt from Israeli banks of
     long-term foreign currency credit facilities in an aggregate amount, in
     which the Company's share totals NIS 395.7 million, (for the financing
     hotels and/or entertainment and commercial centers construction), the
     companies owning the properties undertook in favor of the banks to comply,
     throughout the duration of the credit, with certain financial and operating
     covenants. Should such companies fail to comply with all or any of such
     covenants, or upon the occurrence of certain events as detailed in the
     agreements, the banks will then be entitled to demand the immediate
     repayment of the loans. As of December 31, 2004, the borrowers are yet to
     comply with certain covenants, which in the opinion of the managements
     thereof do not affect their repayment ability (principal and/or interest)
     to the banks on a regular basis and the actual repayments, as aforesaid.
     The parties to the agreements follow the terms and conditions provided
     therein in respect of the long term repayment schedule or in accordance
     with the agreement with the bank, as the case may be. The borrowers'
     managements are of the opinion, based on previous experience, that the
     banks will not call for immediately repayment of the credit, as a result of
     such temporary breaches. The Company's management believes therefore that
     these loans are vested with a long-term nature. In addition, the banks have
     informed the Company in writing as to their consent to extend the term of
     the above-mentioned credit facilities until January 1, 2006.

F.   SECURITIES - See Note 16D., below.




                                      F-38
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - LIABILITY FOR EMPLOYEE SEVERANCE BENEFITS, NET

A.    IN ISRAEL:

      The liability of the Group companies for pension contribution plan and
      severance pay are covered mostly by current deposits to accounts on the
      employees' behalf at recognized pension and severance-pay funds and/or by
      acquiring policies from insurance companies. These deposits are not under
      the custody of management of the Group companies and, therefore, are not
      reflected in the balance sheet. The liability for employee severance
      benefits included in the balance sheet represents the liability not
      covered by the above-mentioned deposits and/or insurance policies.

B.    ABROAD:

      A liability of foreign consolidated subsidiaries for severance pay to
      their employees, pursuant to the laws of the respective countries in which
      these companies reside and the labor agreements in effect, is ordinarily
      covered by current payments to government agencies with respect to
      voluntary or involuntary termination of employment, as well as by regular
      payments to insurance companies for pension benefits and by the
      balance-sheet accrual.

NOTE 15 - INCOME TAXES

A.    THE PROVISION FOR INCOME TAXES (BENEFITS) CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                     -------------------------------------------
                                       2004             2003               2002
                                     --------          ------             ------
                                     REPORTED                  ADJUSTED
                                     --------          -------------------------
                                                   NIS (THOUSANDS)
                                     -------------------------------------------
<S>                                  <C>               <C>               <C>
Current                                 992               932               435
Deferred                             (1,639)           (9,316)           (5,656)
                                     ------            ------            ------
                                       (647)           (8,384)           (5,221)
                                     ======            ======            ======
</TABLE>


                                      F-39
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - INCOME TAXES (CONT'D)

B.    TAX LAWS APPLICABLE TO THE MAJOR GROUP COMPANIES IN THEIR COUNTRY OF
      RESIDENCE

      (1)   ISRAEL

            (a)   The Company and its Israeli subsidiaries are subject to income
                  tax under the provisions of the Income Tax Law (Inflationary
                  Adjustments), 1985, which introduced the concept of measuring
                  results for tax purposes on a real basis. Corporate tax rate
                  applicable to companies in Israel in 2004 is 35% which will
                  gradually decrease in the coming years to a 30% tax rate in
                  2007 and thereafter.

            (b)   As of January 1, 2003, statutory provisions came into force,
                  concerning, among other things, tax reform in Israel, in
                  connection with:

                  (1)   (i)   Taxation of profits of foreign resident companies
                              regarded as Controlled Foreign Companies ("CFC"),
                              if: (i) most of their revenues are passive, as
                              defined by law, or most of their profits derive
                              from passive revenues, (ii) the tax rate applying
                              to their passive profits in their country of
                              residence does not exceed 20%, and (iii) over 50%
                              of the means of control in them are held, directly
                              or indirectly, by Israeli residents.

                              In accordance with the statutory provisions, a
                              controlling shareholder in such companies that
                              have unpaid profits, as defined by law, will be
                              deemed to have received his relative proportion in
                              these profits as a dividend (hereinafter:
                              "notional dividend").

                        (ii)  Taxation of a dividend received in Israel,
                              originating in profits generated or accrued
                              outside Israel, as well as a dividend originating
                              outside Israel.

                        A notional dividend (and/or the distribution of
                        dividends), as aforestated, will be subject to a 25% tax
                        rate , less taxes which would have been paid abroad in
                        respect of the dividend, had it in fact been
                        distributed, or 35% less taxes actually paid abroad in
                        respect of such profits, as elected at the sole
                        discretion of the assessee.

                  (2)   Taxation of an Israeli resident's profits accrued or
                        generated outside Israel (until the end of 2002, Israeli
                        residents were taxed on such profits only if received in
                        Israel).

                  (3)   Taxation of capital gains from the realization of assets
                        at a reduced rate of 25%. The reduced rate will apply to
                        realization of assets commencing January 1, 2003 and
                        onwards, and will be calculated for the part of the
                        profits relating to the period subsequent to this date
                        up to the realization date.

                  (4)   Guidance on the ability to offset losses - regarding
                        business losses, capital losses, passive losses and CFC
                        losses.

            (c)   During 2004, the Company, EIL and EMI have completed an
                  arrangement with the Israeli tax authorities, with effect from
                  December 31, 2002, whereby a new tax basis has been determined
                  for the Company's investments (on a consolidated basis) in
                  foreign subsidiaries (hereinafter: "regulated revaluation" and
                  "regulated assets"). The arrangement provides for no
                  additional tax to be imposed in Israel on gains generated from
                  the realization of regulated assets, and on dividends
                  distributed therefrom, and all up to the amount of the
                  regulated revaluation.


                                      F-40
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - INCOME TAXES (CONT'D)

B.    TAX LAWS APPLICABLE TO THE MAJOR GROUP COMPANIES IN THEIR COUNTRY OF
      RESIDENCE (CONT'D)

      (2)   U.S.A

            (a)   Corporate tax applicable to companies incorporated in the
                  country - 35%.

            (b)   US tax laws set limitations on the utilization of
                  carry-forward tax losses in companies that have undergone a
                  material change in ownership. Accordingly, if the transfer of
                  the EMI shares to EIL in 1999 is defined as a material change
                  in ownership of the U.S. company, then the ability to utilize
                  the accumulated tax-losses of a U.S. consolidated subsidiary
                  against future income would be limited considerably.
                  Management, based on advice received regarding this matter, is
                  of the opinion that there will be no limitation to utilize the
                  carry forward losses. As of December 31, 2004 the accumulated
                  carry-forward losses utilized by the U.S. subsidiary against
                  current profits amount to approximately $5.2 million. No
                  deferred income taxes have been recorded in respect of the
                  unutilized balance of the carry-forward losses.

            (c)   A non-U.S. company may (under certain conditions) be deemed
                  for U.S. income tax purposes as a Passive Foreign Investment
                  Company ("PFIC") on the basis of an "income test" and an
                  "assets test", as determined by the IRS. Once so defined, the
                  U.S. shareholders may be subject to additional taxes upon the
                  distribution of earnings or assets and/or upon their
                  realization of their holdings in such a defined company.
                  Following the sale of the Company's activity (including the
                  sale of the subassemblies and components segment - See Note
                  21, below) and due to its entry into other areas of
                  activities, the management of the Company beleives, based on
                  advice received regarding this matter, that in light of
                  existing indications, it may not - under the circumstances -
                  be considered as a PFIC. Nevertheless, there is no certainty
                  that the Company's position would prevail with the IRS.

      (3)   THE NETHERLANDS

            (a)   Corporate tax applicable to companies incorporated in the
                  Netherlands is 34.5%. In December 2004, a new law was
                  introduced, in terms of which tax rates shall gradually
                  decrease from 31.5% in 2005 to 30.0% in 2007.

            (b)   Under the "Participation Exemption", a dividend received by a
                  Dutch company in respect of an investment in shares of other
                  companies is exempt from corporate tax in Holland. A capital
                  gain derived upon the sale of the shares of an investee
                  company would be tax exempt , subject to the fulfillment of
                  certain conditions stipulated in the law (including the
                  holding percentage, the nature of activities of the holding
                  and the investee company, etc.) Capital losses may not be
                  offset unless the investee company had been liquidated (or is
                  liquidated through 2007), under certain conditions. Dividends
                  distributed from the Netherlands to Israel are subject to 5%
                  withholding tax.

      (4)   ENGLAND

            (a)   Operating income and capital gains generated by the group
                  companies, which are England residents, are subject to tax
                  rate at 30%. Dividends received from a U.K. resident company
                  are exempt from tax; No tax credits are given for dividends
                  distributed.

            (b)   Net rental income from real estate lease in England by foreign
                  companies having investment activity in the U.K., would be
                  taxed at 22%. Capital gains are tax-exempt.


                                      F-41
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - INCOME TAXES (CONT'D)

B.    TAX LAWS APPLICABLE TO THE MAJOR GROUP COMPANIES IN THEIR COUNTRY OF
      RESIDENCE (CONT'D)

      (5)   ROMANIA

            The corporate income tax rate, through December 31 2004, for
            resident companies or non-resident entities with permanent
            establishments in Romania is 25% (including capital gains).
            Commencing 2005, the tax rate has been reduced to 16%. Dividends
            paid to resident and non-resident companies are subject to a final
            withholding tax of 10%, unless lower double taxation treaty rates
            apply for non-residents. Losses may be offset against taxable income
            for a period of five years from the period they incurred.

      (6)   HUNGARY

            The corporate tax applicable to the income of Hungarian subsidiaries
            (including capital gains) is 16%. Dividends paid out of these
            profits are taxed at an additional 20%, subject to any respective
            double taxation treaty. Through December 31, 2003 a 5% withholding
            tax applied to the distribution of dividends from Hungary to the
            Netherlands. As from May 2004 such distributions are exempt from
            withholding tax. Losses incurred as from the fourth year of the
            entity's operations may be offset against taxable income for a
            period of 5 years, subject to compliance with a turnover expenses
            ratio, in accordance with the income tax regulations. Losses
            incurred during the first three years of operation may be offset
            indefinitely. Losses incurred as from 2004 may be offset
            indefinitely.

      (7)   BELGIUM

            The corporate tax applicable to income of Belgian-incorporated
            corporation is approximately 34%. Dividend paid out from such income
            is subject to an additional tax of 25%, other than a dividend
            received by companies incorporated in Belgium or in the EU, whose
            holding rate in the Belgian company is at least 25%.

C.    RECONCILIATION OF THE THEORETICAL TAX

<TABLE>
<CAPTION>
                                                                                                     YEAR ENDED DECEMBER 31,
                                                                                              -------------------------------------
                                                                                                2004          2003            2002
                                                                                              --------      --------        -------
                                                                                              REPORTED              ADJUSTED
                                                                                              --------       ----------------------
                                                                                                         NIS (THOUSANDS)
                                                                                              -------------------------------------
<S>                          <C>                                                              <C>           <C>            <C>
Company's statutory tax rate (%)                                                                   35             36             36
                                                                                              =======        =======        =======

Loss before income taxes - per statements of operations                                       (65,760)       (81,456)       (29,958)
                                                                                              =======        =======        =======

The theoretical tax                                                                           (23,016)       (29,324)       (10,785)

Differences in tax burden in respect of:
Utilization of prior year losses for which deferred tax had not been recorded                 (12,591)       (11,882)        (9,856)
Unrecorded deferred taxes on carry forward losses and other timing differences                 36,087         30,755         46,913
Variances arising from different measurement rules applied for the financial
  statements and those applies for income tax purpose (including exchange rate
  differences)                                                                                  1,387          4,533         (6,613)
Adjustment due to change in tax rate                                                           (1,992)            --             --
Adjustment for reduced tax rate in foreign subsidiaries                                          (605)        (6,763)        (3,027)
Other differences, net (1)                                                                         83          4,297        (21,853)
                                                                                              -------        -------        -------
                                                                                                 (647)        (8,384)        (5,221)
                                                                                              =======        =======        =======
</TABLE>

(1)   Mainly tax-exempt income and non-deductible expenses.


                                      F-42
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - INCOME TAXES (CONT'D)

D.    CARRY FORWARD LOSSES AND DEDUCTION

      As of December 31, 2004 the group companies had accumulated tax losses and
      deductions for tax purposes in the amount of approximately NIS 600
      million, which may be utilized in the coming years against taxable income
      at rates ranging from 16% to 35% (depending on the country of residence).
      The realization of the carry forward losses is subject to taxable income
      available in those periods when these losses are deductible.

      In accordance with the tax laws in Hungary and Romania the possibility to
      realize the carry forward losses is limited in time (see B.(5) and B.(6),
      above). Accordingly, carry forward losses in the amount of NIS 33.8
      million will expire, gradually, over the following years:

<TABLE>
<CAPTION>
                                                              BALANCE AS OF
                                                            DECEMBER 31, 2004
                                                            -----------------
                                                               REPORTED NIS
                                                               (THOUSANDS)
                                                            -----------------
<S>                                                         <C>
2006                                                             26,205
2007                                                                317
2008                                                              2,692
2009                                                              4,619
                                                                 ------
                                                                 33,833
                                                                 ======
</TABLE>

      As for carry forward losses in duspute with the income tax authorities,
      see Note 16C.(4), below.

E.    DEFERRED TAX IN RESPECT OF NON-MONETARY ITEMS

      Deferred taxes not provided in respect of the adjustment component of
      buildings and in respect of the net book value of assets which
      depreciation is not deductible for tax purposes (for which it was
      determined not to record deferred income taxes) amounted at December 31,
      2004 to approximately NIS 40.0 million (see Note 2K., above).

F.    SIGNIFICANT COMPONENTS OF THE COMPANY'S DEFERRED TAX ASSETS AND
      LIABILITIES ARE AS FOLLOWS:

<TABLE>
<CAPTION>
                                                           BALANCE AT                                                   BALANCE AT
                                                           JANUARY 1,                       MOVEMENTS                   DECEMBER 31,
                                                              2004                       DURING THE YEAR                    2004
                                                           ----------      -----------------------------------------    ------------
                                                                                                          FOREIGN
                                                                                                          CURRENCY
                                                                           CHANGE OF       PROFITS       TRANSLATION
                                                                           TAX RATES       AND LOSS      ADJUSTMENTS
                                                                           ---------       ---------     -----------
                                                            ADJUSTED                               REPORTED
                                                           ----------      ---------------------------------------------------------
                                                                                         NIS (THOUSANDS)
                                                           -------------------------------------------------------------------------
<S>                                                        <C>             <C>             <C>           <C>            <C>
Accelerated depreciation differences in
  respect of fixed assets                                     1,120            (562)          2,357              15           2,930
Difference between fair value of real
  estate at acquisition and related cost
  for income tax purposes                                    (4,809)          2,070            (238)           (701)         (3,678)
Temporary differences - income and
  expenses                                                   21,718          (3,853)         (2,533)             --          15,332
Carryforward tax losses and deductions                      182,267         (23,386)          6,258            (381)        164,758
                                                           --------        --------        --------        --------        --------
                                                            200,296         (25,731)          5,844          (1,067)        179,342

Valuation allowance                                        (210,429)         27,723          (1,663)         (4,159)       (188,528)
                                                           --------        --------        --------        --------        --------
Total (i)                                                   (10,133)          1,992           4,181          (5,226)         (9,186)
                                                           ========        ========        ========        ========        ========
</TABLE>


(i)   Presented in long-term liabilities.


                                      F-43
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - INCOME TAXES (CONT'D)

G.    FINAL TAX ASSESSMENTS:

      The Company and some of the Group companies have received final tax
      assessments from 1997 to 2002 while some have not yet been assessed since
      incorporation.

NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS

A.    COMMITMENTS

      (1)   (A)   The Company's hotels (located in the Netherlands, Belgium
                  and England) are managed by Park Plaza Hotel Europe B.V. (the
                  "Management Company"), in consideration for an annual fee of
                  2% of the room revenue and 7% of the gross operating profit as
                  defined in the agreements. The companies also participate in
                  certain part of expenses incurred by the Management Company in
                  the course of performance of its due obligations, up to 3% of
                  the said gross operating profit. Upon a sale of any hotel or
                  the transfer of control therein to a third party, the
                  companies owning the respective hotel are obliged to pay the
                  Management Company an amount equal to 7% of the operating
                  profit of the year preceding such sale or transfer. In the
                  specific event of a sale of the Victoria Hotel in Amsterdam,
                  then the Management Company shall also be entitled to receive
                  2.5% of any profit generated from such a sale.

            (B)   Within the terms of the management agreements, B.H. Group
                  companies ("the Companies") were granted a sub-franchise by
                  the Management Company allowing them the utilization,
                  throughout the term of the management agreements, of the "Park
                  Plaza" name, in relation to the hotels owned and operated
                  thereby, in consideration for monthly royalties not exceeding
                  1.5% of the revenues.

            (C)   Two Group companies have agreed with the Rezidor group, on the
                  future management of two hotels, currently under construction
                  and/or renovation (the National Ballet Building in Hungary,
                  which is intended to operate under the "Regent" brand name and
                  the Bucuresti hotel in Bucharest, which is planned to operate
                  under the brand name "Radisson SAS"). The 20 year management
                  period shall commence once construction and/or renovation is
                  completed. The managing company undertook within the framework
                  of the management agreements, to guarantee that the adjusted
                  operating income will not decrease below a fixed annual
                  amounts, as stipulated in the agreements. The total aggregate
                  amount of the guarantee will not, however, exceed,
                  cumulatively during the term of the agreements, those amounts
                  as stipulated in the agreements.

      (2)   B.H. was granted an option, exercisable until December 31, 2005, to
            purchase from the Management Company 33% of its ownership and
            controlling rights in a company under its ownership, which was
            incorporated to acquire the business (including tangible assets,
            hotel management agreements, management rights, rights to use trade
            names, etc.) of the Park Plaza chain in Europe ("the acquired
            company"). As part of the agreement, B.H. has granted the Management
            Company a loan of $ 5 million (see Note 7A.(2), above).

            The scope of B.H's investment may increase by $ 2.25 million, if,
            and to the extent such amount is required to finance acquisition of
            additional assets by the acquired company. The Management Company
            has an option, exercisable, in the event of disagreements arise
            between the parties as to the Management Company's rights, to
            acquire B.H. share, in consideration for an amount equal to the cost
            of B.H's original investment.


                                      F-44
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

A.    COMMITMENTS (CONT'D)

      (3)   On November 29, 2004, a binding Term Sheet was executed by the
            Company and EMI (in equal parts) on one hand, and Taya
            Communications Ltd. ("Taya") on the other hand, for the
            establishment of a joint venture (50% each) which shall submit a bid
            for the tender published by the Second Television and Radio
            Authority, for the award of a license for the operation of the
            "Channel 2" television channel in Israel for a 10 year period (the
            "Term Sheet"). The tender bid was submitted in the end of January
            2005. The Company's and EMI's share in the total aggregate costs of
            the joint venture up to completion of the tender bid, may amount,
            should the tender bit fails, to NIS 5 million (NIS 2.5 million each;
            out of which NIS 0.9 million had been expended by each, through
            December 31, 2004). In the event that the tender bid succeeds, each
            partner to the joint venture will bear costs thereof, pro rata to
            their respective holdings therein.

            Upon submission of the tender bid, winning (if at all) and operating
            same, the parties to the Joint Venture shall be obliged to fulfill,
            pro rata to their holdings therein, certain financial obligations
            (including payment of a one-off franchise fee at an amount offered
            in terms of the tender bid, provision of letters of undertaking and
            deposits as well as good standing collateral to secure fulfillment
            of tender and franchise terms). Within the framework of the tender
            bid and in accordance with the resolution of their respective boards
            of directors, the Company and EMI each undertook vis-a-vis the joint
            venture, to provide credit and collateral and to finance working
            capital investments as well as other commitments, in an aggregate
            amount of up to NIS 32.5 million each. The Company and EMI may
            elect, during the 12 month period of commencing the joint venture's
            broadcasts and subject to certain conditions, to convert their
            holdings in the joint venture into shares of Taya.

            The Term Sheet stipulates, inter alia, the terms of employment of
            the joint venture's CEO ("CEO"), in accordance with principles
            agreed between the CEO and Taya. Such principles were incorporated
            into the employment agreement signed and executed by and between the
            CEO and Taya in January 2005. The agreement also provides for the
            acknowledgement of the Company and EMI as to Taya's undertaking to
            transfer to the CEO, 5% of its holdings in the Joint Venture (2.5%
            indirectly) and for the Company's and EMI consent to each bear 25%
            of the costs stemming from actual payments executed by Taya to the
            CEO pertaining to his said holdings, whether by way of profit
            distribution or sale of his holdings, and all immediately upon
            Taya's execution of such payments.

            It was additionally stipulated in the Term Sheet that the Company
            and EMI acknowledge Taya's undertaking to grant options to the CEO,
            for the acquisition of Taya shares and should the tender bid be
            successful the Company and EMI (respectively) are to bear 25% of the
            costs stemming from exercising such options, and all in accordance
            with the terms as stipulated by the parties and up to a maximum
            amount of NIS 0.4 million each.

      (4)   The Company, EIL and EMI, are bound by an agreement, the validity of
            which has been extended through 31 December 2005, for the allocation
            of costs (direct and indirect) of internal departments within the
            group. The costs are allocated by and between the parties according
            to actual attribution thereof. Each party to the agreement may elect
            to terminate same at the end of each 12-month period, by giving an
            advance notice to this effect. The abovementioned extension was
            approved by the audit committee and the board of directors of all
            parties.


                                      F-45
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

A.    COMMITMENTS  (CONT'D)

      (5)   A hotel in England was leased as from 2003 to a company engaged in
            the hotels business for a period of 25 years in consideration for a
            fixed rental fees for each one of the initial four years of the
            lease. Commencing the fifth year and throughout the term of the
            lease period, rental fees are to increase at the annual rate of
            2.5%. The payments are guaranteed by a deposit in the amount of L
            2.5 million (the Company's share - L 0.75 million). The lessee was
            granted an option to extend the lease by two consecutive periods of
            15 years each.

      (6)   In October 2001 an engagement between Bucuresti and Control Centers'
            wholly owned subsidiary ("CCS"), was approved at the shareholders'
            meeting of the Company. In accordance with such engagement, CCS is
            to provide coordination, planning and supervision services with
            respect to the renovation works of the Bucuresti Hotel complex, for
            a fee equal to the lower of (i) 5% of total actual costs of the
            renovation works (excluding general and administrative as well as
            financing costs); and (ii) 5% of $30 million. The parties are yet to
            execute a definitive agreement.

      (7)   In December 2004, the Company signed and executed a letter of intent
            for the acquisition of 100% of the equity and voting rights of an
            Israeli company (the "Acquired Company"), which operates a chain of
            nine fashion stores that market the MANGO-MNG(TM) brand name in
            Israel, in consideration for E2.85 million. Upon consummation of the
            transaction, the Acquired Company will execute distribution
            agreements with the brand name owners for a 10-year period, subject
            to fulfillment of certain conditions. The Company has retained the
            right to introduce additional purchasers, provided that it retains
            the control in and to the Acquired Company.

            The consummation of the transaction is subject to the completion of
            a due diligence examination, the receipts of third party approvals
            and the execution of a definitive agreement between the parties.

      (8)   (A)   The minimum future rental payments due under the Company's
                  current operating leases (see Note 9B., above) as of December
                  31, 2004 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED                     REPORTED NIS
DECEMBER 31,                    (THOUSANDS)
------------                    -----------
<S>                            <C>
2005                               5,084
2006                               5,371
2007                               5,371
2008                               5,371
2009                               5,371
Therafter                        552,636
                                 -------
                                 579,204
                                 =======
</TABLE>

            (B)   Long-term commitments in respect of construction services
                  amount to NIS 83.0 million.

B.    LEGAL PROCEEDINGS

      (1)   In November 1999, a number of institutional investors and others,
            holding shares of the Company, filed a lawsuit in the Haifa District
            Court against the Company, EMI, EIL, Control Centers and others. The
            plaintiffs also requested the certification of their claim as a
            class action on behalf of all those who had held the Company shares
            on September 6, 1999, and continued to do so when the claim was
            filed (excluding the Company and others). The plaintiffs allege
            discrimination against the Company's minority shareholders arising
            from various transactions or activities carried out by its
            controlling shareholders and directors, which, allegedly, caused
            them financial loss. The plaintiffs alleged that, as a result of
            these transactions, there was a decline in the value of the
            Company's shares by 45% in the period from February 24, 1999 to the
            claim's filing date, which amounted to $ 100 million.


                                      F-46
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

B.    LEGAL PROCEEDINGS (CONT'D)

      (1)   (CONT'D)

            The principal remedy requested in the claim is a court order
            instructing EMI to carry out a tender offer of the Company shares at
            $14.0 per share, as the former allegedly undertook in its letter to
            the Company of February 1999. Alternatively, the plaintiffs also
            asked the court, inter alia, to issue an injunction prohibiting
            execution of the September 9, 1999 transactions (acquisition of the
            hotel segment and the commercial center in the Herzliya Marina, by
            the Company from EIL and Control Centers, respectively) and the
            refund of any amounts paid there under. Part of the remedies were
            requested as a derivative claim on behalf of the Company.

            The Haifa District Court rejected the class-action request.
            Concurrently, the district court ruled that the plaintiffs,
            notwithstanding having rejected the request for class-action
            proceedings, might nevertheless pursue the matter. This decision was
            appealed by some of the plaintiffs to the Supreme Court. The State
            Attorney General has submitted his opinion to the Supreme Court
            regarding the appeal. According to his opinion, the District Court
            erred in its two legal conclusions when rejecting the request for
            class-action recognition. Accordingly, he believes that the
            plaintiffs should be allowed to appeal and that the appeal, if
            filed, should be accepted. Moreover, the State Attorney General
            believes that, subsequent to the acceptance of this appeal, it will
            be necessary to evaluate the request and approve it as a
            class-action. In November 2001, the plaintiffs were granted leave to
            appeal. The Company and the plaintiffs presented their respective
            pleadings. As of the date of approval of these financial statements,
            the Court has not yet rendered its decision in the motion for leave
            to appeal.

            A dispute exists between the parties as to the amount of the court
            fee deriving from the classification of the remedy sought in the
            claim. While the plaintiffs defined what they were seeking as
            declaratory remedy, the defendants maintained that the real remedy
            being sought in the claim was pecuniary, obligating the plaintiffs
            to pay a fee that is significantly higher than that which has
            actually been paid. In August 2001, the Registrar of the Haifa
            District Court ruled that certain remedies sought were indeed
            pecuniary, as contended by the defendants, while other were not. The
            plaintiffs would therefore be required to pay a fee, in respect of
            the former, of NIS 20.1 million. In September and October 2001,
            appeals of both parties were filed against the Registrar's decision
            in the Haifa District Court. In August 2004 the District Court
            accepted the appeal filed by plaintiffs and dismissed the
            counter-claim, as filed by the Company and the remaining defendants.
            Accordingly, the plaintiffs were not required to pay, at this stage,
            any further fee beyond that which has already been paid.
            Notwithstanding the aforestated, the Court obliged the plaintiffs to
            furnish an undertaking to supplement the fee amount, should they be
            so required.

            The plaintiffs requested postponement of the date for submitting
            such undertaking until the claims' "procedural framework is
            decided". The defendants oppose such an extension. The Courts
            decision is yet to be given in the matter.

            In October 2004, the Company as well as the other defendants filed a
            motion for leave to appeal the ruling of August 2004 to the Supreme
            Court. The defendants petitioned the Supreme Court to set aside the
            decision of the District Court and to reinstate the decision of the
            Registrar as to the plaintiffs' obligation to pay court's fees.

            In accordance with the decision of the Chief Justice of the District
            Court, the defendants (including the Company) were required to file
            statements of defense by March 2005. In October 2004, the Company
            and the other defendants lodged motions for leave to appeal to the
            Supreme Court, in the framework whereof the Supreme Court was
            requested to postpone the date for filing defense statements until
            the derivative action filed on behalf of the Company is decided or
            until such time that the motion for leave to appeal in respect of
            the representative claim is resolved.

            On January 25, 2005, the defendants (including the Company) filed
            another motion to the Supreme Court, for leave to appeal the
            decision of the District Court not requiring the filing of a
            separate motion for and the granting of the Court's approval to the
            derivative relief . The defendants claim that the filing of a
            derivative action requires due filing of a motion and receipt of
            Court approval and as long as same is absent, the claim should not
            be deliberated and defendants are under no obligation to submit
            their defense statements. The defendants also requested the Supreme
            Court to suspend execution of the District Court's decision,
            ordering the filing of statements of defense, within a fixed period
            of time. On March 1, 2005, the Supreme Court handed down its
            decision to grant a provisional stay of execution of the District
            Court's decision to file statement of defense.

            Management based, inter-alia, on a legal opinion, estimates that
            final outcome of this case cannot, at this stage, be estimated.


                                      F-47
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

B.    LEGAL PROCEEDINGS (CONT'D)

      (2)   The Company, EMI and others were served with a claim as well as a
            motion to recognize it as a class-action, in respect of $158 million
            in damages allegedly caused to the group represented in the action.
            Underlying the claim is the contention that EMI, through the
            Company's board of directors, caused damage to and discriminated
            against minority shareholders of the Company. Both parties agreed to
            postpone the hearing in this case until the Supreme Court hands down
            a decision on the application for permission to appeal, detailed in
            section (1) above. Management, based on the advice of legal counsel,
            is of the opinion that it is not possible at this stage to estimate
            the outcome of the claim and the motion for its approval as a
            class-action.

      (3)   The Company and its subsidiaries are parties to several court claims
            and certain other written demands and/or claims, filed against them
            by third parties (including governmental institutions), some -
            without any specified amount, and some - in the aggregate amount of
            $43.0 million, as royalties or as compensation for damages allegedly
            caused to them as a result of the companies' actions and/or
            products, which mainly relate to the medical imaging business sold
            by the Company in 1998 and 1999. In respect of certain claims,
            totaling approximately $7.5 million, management estimates, based on
            legal consulting and/or past experience, that no significant costs
            will accrue thereto as a result of said claims exceeding the
            provisions included in respect thereof in the financial statements,
            and that these provisions are adequate for covering the costs and
            resources needed to settle the liabilities according to said claims.
            Regarding a further $35.5 million, the Company's legal advisers
            cannot presently determine the outcome of these other claims.
            Management believes that the prospects for the realization of the
            great majority of this sum are very remote, based on the long period
            of time that has elapsed since serving of the written demand to the
            Company and based on their nature. To the best of management's
            judgment at the time of preparing the financial statements, based,
            inter alia, on their advisers' opinion and on past experience, the
            companies have included in their financial statements provisions
            that are adequate to cover the costs and resources needed to settle
            the liabilities under these claims.

      (4)   (I)   A criminal investigation carried out against a number of
                  suspects (including former officers in State Ownership Fund
                  ("SOF") who were involved in the privatization procedure and
                  the sale of control in the Bucuresti Hotel to S.C. Domino
                  International Hotel S.R.L. ("Domino")) for events relating to
                  the period prior to the acquisition of control in Bucuresti by
                  B.H., culminated in the filing of an indictment against 17
                  accused. Such criminal proceedings may have an indirect effect
                  on the validity of the privatization and thereby an indirect
                  effect on Domino's rights in Bucuresti, notwithstanding Domino
                  not being an accused party under the indictment. The Court has
                  decided to return the indictment to the prosecutor's office
                  for its resubmission. Domino estimates, based on the advice of
                  legal counsel, that the prospect of these proceedings having a
                  material effect on its rights in Bucuresti shares, are remote.
                  Legal counsel based his opinion on the correspondence with
                  A.P.A.P.S. (formerly the SOF), attesting that Domino has
                  fulfilled all the obligations related to privatization of
                  Bucuresti.

            (II)  A former shareholder in Domino had terminated a partnership
                  agreement with a third party ("the Plaintiff") regarding their
                  joint investment in Domino prior to its acquisition by B.H.,
                  on the grounds of non-compliance by the Plaintiff with its
                  material obligations under the partnership agreement. As a
                  result, the Plaintiff has filed a monetary claim to the
                  Romanian courts against Domino and others, claiming: (i) an
                  amount of $ 2.5 million, for commissions allegedly due to it
                  in terms of the partnership agreement, and to which Domino was
                  a party; and (ii) the termination of an agreement with an
                  Israeli bank within the framework of which the shares of
                  Domino in Bucuresti were pledged in favor of such bank, as a
                  security for the repayment of a loan granted to Domino for the
                  acquisition of such shares. B.H. received an indemnity from
                  the former shareholder against these claims.

                  The Court decided to suspend deliberation of the claim due to
                  the failure by the plaintiff to fulfill certain procedural
                  obligations set by the Court. Domino estimates, based on legal
                  advice received, that these claims have no legal or
                  contractual basis whatsoever, and the third party has no legal
                  standing regarding the claim. Accordingly, no provision for
                  these claims is included in the financial statements.


                                      F-48
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

B.    LEGAL PROCEEDINGS (CONT'D)

      (4)   (CONT'D)

            (III) In the framework of an agreement to establish a joint company
                  owned by Bucuresti and a third party, which was signed prior
                  to the acquisition of Bucuresti by B.H., such third party
                  undertook to invest $ 27.0 million in the said joint company
                  and in consideration Bucuresti undertook to transfer its
                  rights in the Bucuresti Complex to the ownership of the joint
                  company. As that third party failed to meet its obligations,
                  Bucuresti has terminated the partnership agreemant and filed
                  an application to the Court to liquidate the joint company.
                  This application was approved by the Court, though may be
                  appealed to a higher instance court. Bucuresti's rights in and
                  to the hotel may significantly be prejudiced in the event it
                  is obliged to transfer such rights in the Bucuresti Complex to
                  the joint company. B.H.'s management is of the opinion that it
                  is unreasonable that as a result of these proceedings
                  Bucuresti will be obliged to transfer its rights in the
                  Bucuresti Complex to the joint company.

            (IV)  Two claims are pending against Bucuresti, which challenge its
                  ownership in and to its properties (including an appeal
                  relating to the period of the State's ownership of the
                  properties which are the subject of the claim, prior to the
                  sale of Bucuresti's shares to Domino). Both claims were
                  rejected and the plaintiffs have filed appeals pertaining to
                  both rulings, which are expected to be deliberated in 2005.

            (V)   In addition, certain legal proceedings are being conducted
                  from time to time in Romania within the framework of which it
                  is claimed that resolutions passed at the general meetings of
                  shareholders of Bucuresti, were not validly adopted - for
                  procedural reasons only - hence not binding. Some were
                  approved by the Court, in respect of some, Domino has filed
                  appeals, and others were rejected by the Courts. B.H.'s
                  management is of the opinion that the claims are provocative
                  and tendentious and that will not significantly affect B.H.'s
                  rights in the shares of Bucuresti and in the Bucuresti Complex
                  owned by it.

      (5)   The Company was served with a claim filed by a third party in which
            the principal remedy requested is the prohibition on the use by the
            Company of the trade name "Arena" for the Arena entertainment and
            commercial center, on the grounds of unlawful usage of the name,
            exploitation of goodwill and unfair competition. In the event the
            plaintiff's contention is upheld, the Company may suffer indirect
            losses and additional costs. An application for an interim
            injunction, prohibiting the use of the trade name "Arena," was
            dismissed by the court. The Company's legal counsels for this matter
            are unable to estimate the results of said lawsuit, though they
            maintain that the Company has good defense allegations against this
            claim.

      (6)   The Company is a formal party to a claim filed by a number of
            employees, holding shares of Algotech (sold to a third party in
            November 2003), against the majority shareholder in Algotech, in the
            framework of which the Court issued an injunction precluding the
            transfer of funds from Algotech to that shareholder. No remedies
            were requested against the Company and the injunction does not
            affect the transfer of title to funds which are received as proceeds
            of the sale. The Company's management estimates that the said claim
            will not affect its assets.


                                      F-49
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

B.    LEGAL PROCEEDINGS (CONT'D)

      (7)   In March 2005, an action (hereinafter: the "Action") was instituted
            at the Regional Labor Court in Tel-Aviv-Jaffa by an employee of the
            EIL group (hereinafter: the "Plaintiff") against Mr. Mordechai
            Zisser (Chairman of EMI's board of directors), Control Centers and
            Vectory Investments Company Ltd. (controlling shareholders of the
            Company), in terms of which, the Court was requested to issue a
            declaratory order establishing the Plaintiff's entitlement to 14% of
            the shares of the companies specified in the statement of claim -
            including: shares of the Company and Gamida - which are directly or
            indirectly, owned and/or controlled by the defendants and/or by
            companies under control thereof. The Court was further requested to
            order the transfer of such 14% to escrow.

            The Plaintiff also filed, simultaneously, a motion to grant an
            interim injunction prohibiting the defendants and/or any party on
            their behalf, from making any change to and/or transfer and/or
            assignment and/or pledge of and/or disposition in 14% of the shares
            of those companies detailed in the motion. Underlying the claim is
            the contention that the Plaintiff's rights under the statement of
            claim derive from agreements executed by and between the Plaintiff
            and the defendant companies.

            On March 27, 2005, the Labor Court dismissed substantially all of
            the Plaintiff's motion, in determining that the Plaintiff failed to
            evidence: (i) his prima facie right to 14%, as he claimed; (ii) his
            entitlement to rights in and to companies aside from those directly
            invested by EIL; (iii) his right to shares in the Company and in
            Gamida. The Court's conclusions are merely in the framework of a
            provisional proceeding. Nonetheless, Control Centers is of the
            opinion that this claim, insofar as it relates to the Company and/or
            to its subsidiaries as included in the claim, is provocative,
            fundamentally, unfounded and groundless (both with respect to the
            number of the companies in which rights are sought and with respect
            to the scope of rights claimed) and that it will not materially
            affect its rights in EMI and its subsidiaries. However, the
            defendants' legal counsels cannot, at this early stage, estimate the
            outcome of the claim.

            The Company and its subsidiaries are not parties to the claim,
            however the outcome thereof might indirectly affect the nature and
            scope of their rights in their investee companies. No adjustments
            were made in these financial statements in respect of this claim
            which may be required, should it be sustained, in full or in part.

      (8)   The Company and its subsidiaries are currently involved in various
            litigation pertaining to their ordinary course of activities.
            Although the final outcome of these claims cannot be estimated at
            this time, the managements of these companies believe - based on
            legal advice - that the claims will not materially impact the Group
            companies.

C.    OTHER CONTINGENT LIABILITIES

      (1)   The Company's shareholders approved in the General Meeting, the
            granting of advanced indemnification certificates to officers and
            directors, including those acting in its subsidiaries. The total
            indemnity shall not exceed the lower of 25% of the shareholders'
            equity of the Company as recorded in the financial statements of the
            Company as at the indemnification, or $ 50.0 million, and all in
            addition to amounts, if any, which are to be paid by the insurance
            companies under certain risk policies, as exist from time to time,
            for causes covered by such indemnification policies. The General
            Meeting also approved an exemption from liability for any damage
            caused to the Company by breach of duty of care by officers and
            directors.


                                      F-50
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

C.    OTHER CONTINGENT LIABILITIES (CONT'D)

      (2)   In January 2003, the Company received a letter from a certain
            insurer ("the Insurer") of EIL, EMI and the Company (the "Insured
            Companies"), that provides insurance to the Insured companies
            including insurance pertaining to the class action described in item
            B.(1) above. In this letter, the Insurer made certain allegations
            against the Insured Companies, including, inter alia, that the
            Insured Companies breached their disclosure duties under Section
            6(a) to the Insurance Contract Law, 1981, by failing to disclose to
            the Insurer material information prior to the issuance of additional
            cover to the policy purchased by EIL (the "Policy"), effective as of
            July 1999 (the "Additional Cover"), and prior to the replacement of
            the Policy and the Additional Cover by the issuance of a new policy
            effective as of August 1999 (the "Replacement Cover"). The letter
            states that the Policy, Additional Cover and Replacement Cover
            issued by the Insurer will be cancelled unless the Insured Companies
            indicate that circumstances were different than those described in
            the letter. The Company's legal counsel replied on behalf of the
            Insured Companies on March 20, 2003, in which the allegations of the
            Insurer were rejected. As of the approval of these financial
            statements the Company has not received an answer from the Insurer
            to this letter. However, the parties are currently negotiating a
            settlement.

      (3)   Within the framework of the agreement for selling the Company plant,
            as described in Note 21A. below, the Company undertook to indemnify
            the purchasers for any losses incurred in connection with, and as a
            result of, the liabilities not acquired thereby, and in respect of
            any income tax liability incurred by the plant up to December 31,
            2002 (including those arising from environmental matters, employee
            benefits (including subcontractor and workers of manpower agencies),
            breach of the contract signed for the leasing of land from the
            Israel Lands Administration, taxes due for the transfer of the
            rights in the lands to purchasers, that apply to the Company, etc.).
            The liabilities are generally for unlimited periods of time. Some
            are limited in amount while others are not. Total indemnification
            shall not, under any circumstance (excluding environmental matters),
            exceed $4.0 million.

      (4)   A.    In May 2004, the tax authorities issued tax assessments to
                  the Company for the years 1999 through 2002, requiring the
                  payment of additional tax of approximately NIS 43.3 million
                  (including interest, linkage differentials and fines accrued
                  through the date of assessments). In addition, its deductible
                  carry forward losses for 2003 were reduced by NIS 233.0
                  million in respect of which deferred taxes were not recorded
                  in the Company's financial statements (tax benefits). The
                  matter relates primarily to income on foreign deposits and
                  loans to foreign companies which generated, accrued and
                  received abroad. The Company disputes these assessments, which
                  were served with no detailed grounds and accordingly, appealed
                  same. The Company's management estimates, based on
                  professional consultation, that the demands are without merit
                  and they contradict the Income Tax Ordinance and certain
                  regulations promulgated thereunder, which relates to the
                  subject matter of the assessments. The Company's management is
                  of the opinion therefore, that it will not incur additional
                  significant costs as a result, hence no provision was recorded
                  in the financial statements.

            B.    The Company as well as a number of Israeli and foreign
                  subsidiaries of the Company, are currently undergoing tax
                  assessments for the years up to and including 2002. The
                  managements of the companies estimate that they will not incur
                  additional costs following final tax assessments which are to
                  be issued as a result of these proceedings, over and above
                  those for which a provision was recorded in the financial
                  statements.

                  As to certain subsidiaries, in respect of which the assessment
                  proceedings are at a preliminary stage, their outcome may not,
                  at this stage, be estimated. Nonetheless, their respective
                  managements' estimate, based on professional advice, that they
                  will not incur any additional substantial costs following
                  final tax assessments. Accordingly, no provision has been made
                  in these financial statements in respect thereof.


                                      F-51
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

C.    OTHER CONTINGENT LIABILITIES (CONT'D)

      (5)   Final approval for completion of construction of the Arena
            commercial center is contingent on the furnishing, to the local
            municipality, of a bank guarantee to secure payment of the land
            betterment tax, for an amount of approximately $1.0 million.
            Arbitration is currently being held as to such liability between
            Marina Herzliya Limited Partnership Ltd. (of the Control Centers
            Group) and the local municipality. The Company's management
            estimates, based on professional opinion, that no significant costs
            will be borne thereby, in respect of this guarantee.

            The Company received from Control Centers Ltd. a construction
            performance quality guarantee, in the amount, as of December 31,
            2004, of $1.6 million.

D.    LIENS AND COLLATERALS

      (1)   As security of a credit (including short-term) of approximately NIS
            298.0 million received from an Israeli bank, the Company undertook
            to comply with certain financial covenants, namely maintaining,
            throughout the duration of the credit, of a minimum ratio of
            shareholders' equity to total balance sheet assets. The Company has
            registered, as a security for the credit, a first-ranking pledge in
            favor of the bank on the B.H. shares and granted certain additional
            first and second ranking pledges on shares of subsidiaries owned
            thereby. The Company also undertook not to grant any floating or
            fixed charges of any rank, on any existing and prospective assets,
            in favor of third parties, without the bank's prior consent
            (excluding pledges of assets and/or projects - granted in favor of
            those who financed - or refinanced - acquisition and/or execution of
            same). The Company further undertook to provide additional
            collateral, as detailed in the agreement, including first or second
            ranking pledges on assets and interests acquired by means of the
            credit line, and all as may be required by the bank. Should the
            Company fail to comply with the financial covenant, or upon the
            occurrence of certain events of default, then and in such events,
            the bank shall be entitled to demand immediate payment of the loans.

      (2)   PROJECT UNDER CREDIT FACILITIES

            (a)   Certain project companies, which are engaged in the purchase,
                  construction or operation of hotels and/or commercial center
                  ("Project Companies"), have secured their respective credit
                  facilities awarded by financing banks, in a total amount of
                  NIS 1,144.0 million, by first or second ranking (fixed or
                  floating) charges on property owned thereby, including right
                  in and to real estate property as well as the financed
                  projects, on goodwill and other intangible assets, on rights
                  pertaining to certain contracts (including lease, operation
                  and management agreements), on rights arising from insurance
                  policies, and the like. Shares of Project Companies were also
                  pledged in favor of the financing banks.

                  Shareholders loans as well as any other rights and/or
                  interests of shareholders in and to the Project Companies were
                  subordinated to the respective credit facilities. No payment
                  would be permitted to the shareholders (including the
                  distribution of dividends but excluding management fees) prior
                  to securing repayment of the credit facility to the bank and
                  fulfilling certain other preconditions.

                  Certain loan agreements include an undertaking to fulfill
                  certain financial and operational covenants ("covenants")
                  throughout the duration of the credit, namely: achieving
                  certain operational milestones on certain specified dates
                  (e.g. scope of lease, etc.); complying with debt cover, "loan
                  outstanding amount" to secured assets value ratio; complying
                  with certain restrictions on interest rates; maintaining
                  certain cash balances for current operations; maintaining
                  equity to project cost ratio and net profit to current bank's
                  debt; occupancy percentage; average room or rental fee rates;
                  and others.


                                      F-52
<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - COMMITMENTS, CONTINGENCIES, LIENS AND COLLATERALS (CONT'D)

D.    LIENS AND COLLATERALS (CONT'D)

      (2)   PROJECT UNDER CREDIT FACILITIES (CONT'D)

            (a)   (cont'd)

                  Several Project Companies undertook not to make any
                  disposition in and to the secured assets, not to sell,
                  transfer or lease any substantial part of their assets without
                  the prior consent of the financing bank. In certain events the
                  Project Companies undertook not to allow, without the prior
                  consent of the financing bank: (i) any changes in and to the
                  holding structure of the Project Companies nor to allow for
                  any change in their incorporation documents; (ii) execution of
                  any significant activities, including issuance of shares,
                  related party transactions and significant transactions not in
                  the ordinary course of business; (iii) certain changes to the
                  scope of the project; (iv) the assumption of certain
                  liabilities by the Project Company in favor of third parties;
                  (v) receipt of loans by the Project Company and/or the
                  provision thereby of a guarantee to third parties; and the
                  like.

            (b)   The Company guarantees fulfillment of certain obligations in
                  terms of financing agreements, of various B.H. Project
                  Companies up to an amount equal to a certain percentage of the
                  loan amount or the cost of construction, as applicable. The
                  maximum amount of the guarantee (upon completion of the
                  projects) is estimated at L8.0 million (NIS 66.5 million). As
                  of December 31, 2004, such amount totaled L7.6 million (NIS
                  63.4 million).

            (c)   As to bank deposits made to secure loans and guarantees
                  received therefrom, by the Group Companies - see Notes 4 and 7
                  above.

      (3)   S.C. BUCURESTI TURISM SA ("BUCURESTI")

            In order to secure bank loan in the amount of $ 26.0 million (NIS
            112.0 million) received by the controlling shareholder in Domino
            ("BHEE") for financing its investment in Bucuresti, the Company
            granted a first ranking lien on a bank deposit of $ 14.0 million and
            on the rights and income deriving therefrom. In addition, BHEE
            granted a fixed lien on the Domino shares that it owns and a
            floating lien on all of Domino's assets and a lien on the Bucuresti
            shares. The Company pledged its BHEE shares and also granted
            floating lien on BHEE's assets. An undertaking was granted in favor
            of the financing bank not to allow for any change in the company's
            ownership and control structure of BHEE throughout the duration of
            the credit. In addition, the Company provided a guarantee, unlimited
            in amount, to secure BHEE undertaking to the bank. The bank
            restricted its right to realize this guarantee, by linking it to the
            terms of the realization of the Bucuresti shares owned by Domino
            (except for certain instances as stipulated in the agreement).


                                      F-53

<PAGE>

                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - SHARE CAPITAL

A.     CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                 ORDINARY SHARES,
                                                             NIS 0.05 PAR VALUE
                                                                 DECEMBER 31,
                                                                 ------------
                                                             2004             2003
                                                             ----             ----
<S>                                                    <C>              <C>
      Authorized share capital                         24,000,000       24,000,000

      Issued and outstanding (*)                       17,493,143       17,493,143
</TABLE>

       * Includes 657,923 "dormant" shares (2003 -- 81,000 shares) (see Notes 2
       O., above and 18I.(1)(ii), below).

B.     SUPPLEMENTAL INFORMATION REGARDING THE SHARE CAPITAL

       The balance of the shares includes 721,500 shares held by the Group's
       employees and directors, as well as by employees of the EMI group, issued
       thereto in December 2001, within the framework of employees and officers
       incentive plan ("Employees").

       The acquisition of the shares by the Employees was financed by a loan
       provided for such purpose by the Company, to be repaid at the end of a
       five-year period. The loan bears an annual interest of 6%. Any tax to
       which Employees may be subject as a result of the said interest shall be
       borne by the Company. However, the Company will not assume any liability
       for the payment of tax imposed, if so, in respect of the allotment of the
       shares and their subsequent sale. The shares are held in escrow, and will
       be used as sole security for repayment of the said loan. In the event an
       Employee elects to transfer its vested shares, whether to himself or to
       any other third party, then he shall be obliged to deposit an amount
       equal to the balance of the loan as security for repayment.

       Should the Company distribute any dividends, with a "record" date
       occuring at any date during the escrow period, then the Company shall
       transfer to the escrow agent such dividends corresponding to the number
       of shares held on behalf of Employees by the escrow agent, who in turn
       will transfer such dividends to the respective Employees.

       All shares held by the Employees, as of December 31, 2004, are free of
       any restriction ("Vested"). Following the balance sheet date, shares were
       exercised by Employees such that the balance thereof as of the date
       immediately preceding the date of approving the financial statements - is
       665,500 shares.

C.     OUTSTANDING OPTIONS

       In December 2003 the Company approved a plan for an issuance of up to
       116,000 options to directors and officers in the Company. The Company has
       granted 50,000 options, for no considerations, under Section 102 to the
       Israeli Income Law (Capital Course) with an exercise price equal to the
       average price of the Company share during the 30 trading days preceding
       the day of granting. Approximately half of the vesting period will occur
       during 2004 and the balance will occur during 2005.

                                      F-54

<PAGE>
                                                                 Elscint Limited
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - ADDITIONAL INFORMATION IN RESPECT OF STATEMENT OF OPERATIONS ITEMS

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                               -----------------------
                                                                                        2004             2003              2002
                                                                                        ----             ----              ----
                                                                                    REPORTED                    ADJUSTED
                                                                                    --------        ---------------------------
                                                                                                    NIS (THOUSANDS)
                                                                                    -------------------------------------------
<S>                                                                                 <C>               <C>               <C>
        REVENUES FROM HOTELS OPERATIONS AND MANAGEMENT

        Rooms                                                                        135,208          123,640           134,770
        Food and beverage                                                             48,384           43,769            49,800
        Rental of commercial areas                                                     8,364            9,421             6,241
        Other services                                                                26,409           12,375            15,868
                                                                                     -------          -------           -------
                                                                                     218,365          189,205           206,679
                                                                                     =======          =======           =======
B.      COST OF HOTELS OPERATIONS AND MANAGEMENT

        Salaries and related expenses                                                 69,194           65,033            69,989
        Food beverage and other hotels consumption                                    12,652           12,516            17,259
        Other hotels operation expenses                                               55,776           50,752            45,959
                                                                                     -------          -------           -------
                                                                                     137,622          128,301           133,207
                                                                                     =======          =======           =======
C.      COST OF COMMERCIAL CENTER OPERATIONS

        Salaries and related expenses                                                  5,378              971                --
        Operation expenses                                                            23,437            9,965                --
        Depreciation                                                                  31,070           11,039                --
                                                                                     -------          -------           -------
                                                                                      59,885           21,975                --
                                                                                     =======          =======           =======
D.      COST OF ASSET LEASING

        Depreciation and amortization                                                  2,895            2,994                --
        Others                                                                           280              516                --
                                                                                     -------          -------           -------
                                                                                       3,175            3,510                --
                                                                                     =======          =======           =======
E.      HOTELS' DEPRECIATION, AMORTIZATION AND OPERATING EXPENSES

        Depreciation and amortization                                                 38,674           32,014            34,651
        Operation expenses                                                            25,839           18,418            26,852
                                                                                     -------          -------           -------
                                                                                      64,513           50,432            61,503
                                                                                     =======          =======           =======

F.      SELLING AND MARKETING EXPENSES

        Salaries and related expenses                                                    737              389                --
        Advertising and marketing                                                      8,987            4,861                --
        Doubtful debts                                                                   591                -                --
        Depreciation and amortization                                                  2,453            3,632                --
        Others                                                                         1,278               66                --
                                                                                     -------          -------           -------
                                                                                      14,046            8,948                --
                                                                                     =======          =======           =======
</TABLE>

                                      F-55

<PAGE>

                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - ADDITIONAL INFORMATION IN RESPECT OF STATEMENT OF OPERATIONS ITEMS
(CONT'D)

<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                               -----------------------
                                                                                        2004             2003              2002
                                                                                        ----             ----              ----
                                                                                    REPORTED                    ADJUSTED
                                                                                    --------         --------------------------
                                                                                                     NIS (THOUSANDS)
                                                                                    -------------------------------------------
<S>                                                                                 <C>               <C>            <C>

G.      GENERAL AND ADMINISTRATIVE EXPENSES

        Salaries and related expenses                                                 13,733           13,790        (*) 13,720
        Professional expenses                                                          5,911            6,407             7,351
        Office, rental and maintenance                                                 2,511            2,392             1,294
        Depreciation and amortization                                                    794              772               748
        Others                                                                         4,659            5,994             8,461
                                                                                     -------         --------          --------
                                                                                      27,608           29,355            31,574
                                                                                     =======         ========          ========
      (*) Including dividend in the amount of NIS 2,483 thousands.

H.      FINANCE INCOME (EXPENSES), NET

        Short-term loans                                                              14,055          (60,998)          (54,323)
        Long-term loans                                                              (88,859)          22,177            (6,566)
        Deposits and other receivables                                                 3,689          (17,419)           21,144
        Gain (loss) on securities                                                         60              781              (329)
        Other (including erosion of monetary items and other, net)                    (1,742)          (5,189)           (5,481)
                                                                                     -------         --------          --------
                                                                                     (72,797)         (60,648)          (45,555)
        Financial costs capitalized to buildings under construction (i)                7,154           (7,344)           22,561
        Financial costs credited to capital reserve from translation
          differences                                                                 30,838           26,730            35,799
                                                                                     -------         --------          --------
                                                                                     (34,805)         (41,262)           12,805
                                                                                     =======         ========          ========
        (i) The annual capitalization rate applicable to the
             non-specific borrowing cost (see Note 2R. above)                           2.4%            (6.3%)              4.5%
                                                                                     =======         ========          ========
I.      OTHER EXPENSES, NET

        Gain from realization of long term investments, net (1)                          687           24,712                --
        Gain from realization (repayment) of monetary balances of
          capital nature, in investees (2)                                            12,378            5,831                --
        Impairment of investments and fixed assets (3)                               (10,525)         (43,712)          (19,955)
        Loss from realization of fixed assets, net                                   (10,346)          (1,012)             (168)
        Others, net                                                                   (1,555)          (1,995)           (1,379)
                                                                                     -------         --------          --------
                                                                                      (9,361)         (16,176)          (21,502)
                                                                                     =======         ========          ========
</TABLE>

                                      F-56

<PAGE>

                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - ADDITIONAL INFORMATION IN RESPECT OF STATEMENT OF OPERATIONS ITEMS
(CONT'D)

I.     OTHER EXPENSES, NET (CONT'D)

       (1)     (i)   In November 2003 a transaction was completed within the
                     framework of which the Company sold to a third party its
                     entire holdings (16% fully diluted) in Algotech Systems
                     Ltd., in consideration for an estimated total of NIS 33.7
                     million (following adjustments). The Company generated NIS
                     30.0 million as gain from such transaction, NIS 28.0
                     million of which was recorded in 2003 and 2004, with the
                     balance, in the amount of NIS 2.0 million, to be recorded
                     in 2005 (see, in addition, Note 16B.(6) above).

              (ii)   In November 2004, a transaction was consummated in terms of
                     which the Company transferred to an institutional investor
                     ("the Investor") 357,953 shares of EMI in consideration for
                     576,923 of the Company shares held by the Investor. The
                     ratio of the share transfer was determined based on the
                     closing price of EMI's shares on the stock exchange as at
                     the date of the transaction ($ 8.4 per share). The price of
                     the Company's shares on the NYSE as at such date was $ 4.3
                     per share. This transaction was recorded, in the Company's
                     financial statements, as a self purchase of the Company's
                     shares based on their fair value in consideration for
                     proceeds from realization of EMI shares. As a result of the
                     said transaction, the Company recorded in its financial
                     statements, a loss of approximately NIS 2.7 million.

       (2)    During 2003 and 2004, subsidiaries of the Company entered into
              refinance loan agreements with banks and financial institutions in
              respect of two hotels in the Netherlands and a hotel in England.
              These subsidiaries have used the excess credit facilities as a
              repayment of shareholders' loans previously provided to them.

              As a result, the Company has realized the previously recorded
              foreign currency translation adjustments attributed to these
              shareholders loans.

       (3)    See note 9 C., above.

J.     EARNINGS PER SHARE

       (1)      DATA USED IN THE COMPUTATION OF BASIC EARNINGS PER
                SHARE:

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------
                                                                                 2004              2003             2002
                                                                                 ----              ----             ----
                                                                             REPORTED                        ADJUSTED
                                                                             --------    -------------------------------
                                                                                         NIS (THOUSANDS)
                                                                             -------------------------------------------
<S>                                                                        <C>                <C>              <C>
                 Loss from continuing operations                              (72,448)           (79,345)         (26,705)
                 Net profit from discontinuing operation                       11,067             12,972           88,983
                 Weighted number of shares                                 16,597,181         16,690,643       16,690,643

       (2)      DATA USED IN THE COMPUTATION OF DILUTED EARNINGS PER

                SHARE:

                Loss from continuing operations                                     *                  *          (28,810)
                Net profit from discontinuing operation                             *                  *           88,983
                Weighted number of shares                                           *                  *       17,424,643
</TABLE>

       (*) Anti dilutive.

                                      F-57


<PAGE>

                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - TRANSACTIONS WITH RELATED PARTIES

A.     TRANSACTIONS WITH RELATED PARTIES

       (1)        CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------
                                                                                       2004           2003            2002
                                                                                       ----           ----            ----
                                                                                   REPORTED                 ADJUSTED
                                                                                   --------           --------------------
                                                                                               NIS (THOUSANDS)
                                                                                   ---------------------------------------
<S>                                                                                <C>             <C>               <C>
              CONTINUING OPERATIONS:

              Revenues from long-term contracts                                          --             --           1,509
              General and administrative expenses (I)                                 4,812          6,843           9,469
              Project costs (coordination, supervision and aviation services)
                charged to cost of the fixed asset (II)                               1,956            979              74
              Cost of construction of the Arena, charged to the cost of the
                fixed assets                                                          7,800        154,039              --
              DISCONTINUING OPERATION:
              Other income                                                               --             --           1,729
</TABLE>


              (I) INCLUDES:

                     A.    BENEFITS GRANTED TO RELATED PARTIES, AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                          -----------------------
                                                                                     2004           2003            2002
                                                                                     ----           ----            ----
                                                                                    REPORTED             ADJUSTED
                                                                                    --------        --------------------
                                                                                              NIS (THOUSANDS)
                                                                                    ------------------------------------
<S>                                                                                 <C>            <C>              <C>
                           PAYMENTS TO DIRECTORS:
                           Non-employee -
                             Cost                                                      272            310           1,062
                                                                                     =====          =====           =====
                            Number of recipients                                         4              4               4
                                                                                     =====          =====           =====
                           Employed -
                             Cost                                                    2,823          3,386           4,500
                                                                                     =====          =====           =====
                            Number of recipients                                         2              2               2
                                                                                     =====          =====           =====
                    B.     PARTICIPATION IN JOINT EXPENSES, NET
                             (SEE NOTE 16A.(4))                                        925          2,080           3,120
                                                                                     =====          =====           =====
</TABLE>

              (II)         See Note 16 A. (6) above and item (6) below.

                                      F-58
<PAGE>
                                                                 Elscint Limited

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 - TRANSACTIONS WITH RELATED PARTIES (CONT'D)

A.    TRANSACTIONS WITH RELATED PARTIES (CONT'D)

      (2)   As for shares and options allotted to interested parties - See Note
            17B. above.

      (3)   The directors and officers of the Company and its subsidiaries are
            covered by insurance of up to $40.0 million (for event and for the
            period) within the framework of a joint insurance policy valid
            through October 2005 for the EIL Group companies. The Company bears
            its relative share (33%) of the insurance cost.

      (4)   Indemnification to directors- See Note 16 C. (1), above.

      (5)   EIL acquired "Run off" coverage for itself, EMI and the Company, up
            to a limit of $20.0 million beyond the coverage of $40.0 million
            included in the additional policies, through September 2006. The
            premium for this coverage would be $810.0 thousand for the entire
            six years (33% for each company). This insurance covers officers in
            respect of events occurring prior to May 1999 so long as unreported
            and unknown in May 1999.

      (6)   Subsidiaries of the Company receive, from time to time, aviation
            services from Jet Link Ltd. (a company controlled by Control
            Centers) in consideration for a payment based on the latter's price
            list, net of a discount of at least 5%.

      (7)   The Company leases office space from Control Centers at market
            prices.

B.    BALANCES WITH RELATED PARTIES

<TABLE>
<CAPTION>
                                         DECEMBER 31,  DECEMBER 31,
                                            2004          2003
                                          REPORTED      ADJUSTED
                                          --------      --------
                                             NIS (THOUSANDS)
                                          ----------------------
<S>                                      <C>           <C>
ASSETS
Receivables and other debit balances         2,449         3,945

LIABILITIES
Accounts payable - trade                       307         4,276
Payable and other credit balances              331         1,861
</TABLE>

C.    Commitments - see Note 16A., above.

D.    Liens and guarantees - see Note 16D., above.

E.    The Group companies conduct business (the receipt of credit, deposit and
      management of security portfolio transactions) with a bank, being a
      related party of the Company. As these transactions are executed in the
      ordinary course of business and under customary market terms and
      conditions, no segregation has been made in respect thereof and no
      disclosure has been provided thereto in the financial statements.


                                      F-59
<PAGE>
                                                                 Elscint Limited


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 20 - BUSINESS SEGMENTS

A.    PRIMARY REPORTING

<TABLE>
<CAPTION>
                                                                           COMMERCIAL
                                                                              AND
                                                                          ENTERTAINMENT      ASSET    VENTURE CAPITAL
                                                              HOTELS         CENTER         LEASING     INVESTMENTS     CONSOLIDATED
                                                              ------         ------         -------     -----------     ------------
                                                                                   REPORTED NIS (THOUSANDS)
                                                                                   ------------------------
<S>                                                         <C>           <C>             <C>         <C>              <C>
YEAR ENDED DECEMBER 31, 2004:
REVENUES                                                       218,365         55,263         13,238            --         286,866
                                                            ==========      =========      =========     =========      ==========
OPERATING INCOME (LOSS) BY SEGMENT                              10,171        (26,156)        10,063          (179)         (6,101)
                                                            ==========      =========      =========     =========
Less unallocated general and administrative expenses:                                                                      (15,493)
                                                                                                                         ---------
OPERATING LOSS BEFORE FINANCE EXPENSES, NET                                                                                (21,594)
Finance expenses, net                                                                                                      (34,805)
                                                                                                                         ---------
OPERATING LOSS AFTER FINANCE EXPENSES, NET                                                                                 (56,399)
Other expenses, net                                                                                                         (9,361)
                                                                                                                         ---------
LOSS BEFORE INCOME TAXES                                                                                                   (65,760)
Tax benefits                                                                                                                  (647)
                                                                                                                         ---------
LOSS AFTER INCOME TAXES                                                                                                    (65,113)
Share in loss of an associated company                              --             --             --        (6,611)         (6,611)
                                                            ==========      =========      =========     =========
Minority interest in profit of  a subsidiary                                                                                  (724)
                                                                                                                         ---------
LOSS FROM CONTINUING OPERATIONS                                                                                            (72,448)
NET PROFIT FROM DISCONTINUING OPERATION                                                                                     11,067
                                                                                                                         ---------
LOSS                                                                                                                       (61,381)
                                                                                                                         =========

PURCHASE COST OF SEGMENT FIXED AND INTANGIBLE ASSETS (*)       171,643         24,843             --            --
                                                            ==========      =========      =========     =========
DEPRECIATION AND AMORTIZATION OF SEGMENT ASSETS                 38,674         33,801          2,895            --
                                                            ==========      =========      =========     =========
PROVISION FOR IMPAIRMENT OF INVESTMENTS AND ASSETS              10,025             --             --            --
                                                            ==========      =========      =========     =========
DECEMBER 31, 2004:
SEGMENT ASSETS (*)                                           1,522,842        616,838        129,914            --       2,269,594
                                                            ==========      =========      =========     =========
EQUITY METHOD INVESTMENT                                            --             --             --        17,579          17,579
                                                            ==========      =========      =========     =========
UNALLOCATED ASSETS                                                                                                         263,783
                                                                                                                         ---------
                                                                                                                         2,550,956
                                                                                                                         =========

SEGMENT LIABILITIES                                             45,352         14,622          8,311            --          68,285
                                                            ==========      =========      =========     =========
UNALLOCATED LIABILITIES                                                                                                  1,599,791
                                                                                                                         ---------
                                                                                                                         1,668,076
                                                                                                                         =========
</TABLE>

(*) In respect of assets under construction - See Note 9A. above.


                                      F-60
<PAGE>
                                                                 Elscint Limited


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 20 - BUSINESS SEGMENTS (CONT'D)

A.    PRIMARY REPORTING (CONT'D)

<TABLE>
<CAPTION>
                                                                           COMMERCIAL
                                                                               AND
                                                                          ENTERTAINMENT     ASSET     VENTURE CAPITAL
                                                              HOTELS         CENTER        LEASING      INVESTMENTS    CONSOLIDATED
                                                              ------         ------        -------      -----------    ------------
                                                                                 ADJUSTED NIS (THOUSANDS)
                                                                                 ------------------------
<S>                                                         <C>            <C>            <C>           <C>            <C>
YEAR ENDED DECEMBER 31, 2003:
REVENUES                                                       189,205         20,106         13,495            --        222,806
                                                            ==========     ==========     ==========    ==========     ==========
OPERATING INCOME (LOSS) BY SEGMENT                                (510)       (15,526)         9,985        (2,176)        (8,227)
                                                            ==========     ==========     ==========    ==========
Less unallocated general and administrative expenses:                                                                     (15,791)
                                                                                                                       ----------
OPERATING LOSS BEFORE FINANCE EXPENSES, NET                                                                               (24,018)
Finance expenses, net                                                                                                     (41,262)
                                                                                                                       ----------
OPERATING LOSS AFTER FINANCE EXPENSES, NET                                                                                (65,280)
Other expenses, net                                                                                                       (16,176)
                                                                                                                       ----------
LOSS BEFORE INCOME TAXES                                                                                                  (81,456)
Tax benefits                                                                                                               (8,384)
                                                                                                                       ----------
LOSS AFTER INCOME TAXES                                                                                                   (73,072)

Share in loss of an associated company                              --             --             --        (7,019)        (7,019)
                                                            ==========     ==========     ==========    ==========
Minority interest in loss of a subsidiary                                                                                     746
                                                                                                                       ----------
LOSS FROM CONTINUING OPERATIONS                                                                                           (79,345)

NET PROFIT FROM DISCONTINUING OPERATION                                                                                    12,972
                                                                                                                       ----------
LOSS                                                                                                                      (66,373)
                                                                                                                       ==========
PURCHASE COST OF SEGMENT FIXED AND INTANGIBLE ASSETS (*)       173,744        214,560          2,186            --
                                                            ==========     ==========     ==========    ==========
DEPRECIATION AND AMORTIZATION OF SEGMENT ASSETS                 34,619         14,938          2,994            17
                                                            ==========     ==========     ==========    ==========
PROVISION FOR IMPAIRMENT OF INVESTMENTS AND ASSETS              25,757         14,660             --            --
                                                            ==========     ==========     ==========    ==========
DECEMBER 31, 2003:
SEGMENT ASSETS (*)                                           1,290,092        640,874        119,979            34      2,050,979
                                                            ==========     ==========     ==========    ==========
EQUITY METHOD INVESTMENT                                            --             --             --        24,340         24,340
                                                            ==========     ==========     ==========    ==========
UNALLOCATED ASSETS                                                                                                        373,130
                                                                                                                       ----------
                                                                                                                        2,448,449
                                                                                                                       ==========
SEGMENT LIABILITIES                                             53,147         16,277          7,718           431         77,573
                                                            ==========     ==========     ==========    ==========
UNALLOCATED LIABILITIES                                                                                                 1,424,678
                                                                                                                       ----------
                                                                                                                        1,502,251
                                                                                                                       ==========
</TABLE>

(*) In respect of assets under construction - See Note 9 A., above.


                                      F-61
<PAGE>
                                                                 Elscint Limited


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 20 - BUSINESS SEGMENTS (CONT'D)

A.    PRIMARY REPORTING (CONT'D)

<TABLE>
<CAPTION>
                                                                          COMMERCIAL
                                                                              AND
                                                                         ENTERTAINMENT VENTURE CAPITAL
                                                              HOTELS        CENTER       INVESTMENTS      OTHER        CONSOLIDATED
                                                              ------        ------       -----------      -----        ------------
                                                                                    ADJUSTED NIS (THOUSANDS)
                                                                                    ------------------------
<S>                                                         <C>            <C>           <C>            <C>            <C>
YEAR ENDED DECEMBER 31, 2002:
REVENUES                                                       206,679             --            --          1,509        208,188
                                                            ==========     ==========    ==========     ==========     ==========
OPERATING INCOME (LOSS) BY SEGMENT                                  20             --        (3,857)          (390)        (4,227)
                                                            ==========     ==========    ==========     ==========
Less unallocated general and administrative expenses:                                                                     (17,034)
                                                                                                                       ----------
OPERATING LOSS BEFORE FINANCE INCOME, NET                                                                                 (21,261)
Finance income, net                                                                                                        12,805
                                                                                                                       ----------
OPERATING LOSS AFTER FINANCE INCOME, NET                                                                                   (8,456)
Other expenses, net                                                                                                       (21,502)
                                                                                                                       ----------
LOSS BEFORE INCOME TAXES                                                                                                  (29,958)
Tax benefits                                                                                                               (5,221)
                                                                                                                       ----------
LOSS AFTER INCOME TAXES                                                                                                   (24,737)
Share in loss of an associated company                              --             --        (2,847)            --         (2,847)
                                                            ==========     ==========    ==========     ==========
Minority interest in loss of a subsidiary                                                                                     879
                                                                                                                       ----------
LOSS FROM CONTINUING OPERATIONS                                                                                           (26,705)

NET PROFIT FROM DISCONTINUING OPERATION                                                                                    88,983
                                                                                                                       ----------
NET PROFIT                                                                                                                 62,278
                                                                                                                       ==========
PURCHASE COST OF SEGMENT FIXED AND INTANGIBLE ASSETS (*)        51,114        118,470         4,801             --
                                                            ==========     ==========    ==========     ==========
DEPRECIATION AND AMORTIZATION OF SEGMENT ASSETS                 36,583             --            65             11
                                                            ==========     ==========    ==========     ==========
PROVISION FOR IMPAIRMENT OF INVESTMENTS AND ASSETS              16,019             --            --             --
                                                            ==========     ==========    ==========     ==========
DECEMBER 31, 2002:
SEGMENT ASSETS (*)                                       (*) 1,192,190    (*) 448,392         1,346             --      1,641,928
                                                            ==========     ==========    ==========     ==========
EQUITY METHOD INVESTMENT                                            --             --        31,897             --         31,897
                                                            ==========     ==========    ==========     ==========
UNALLOCATED ASSETS                                                                                                        723,459
                                                                                                                       ----------
                                                                                                                        2,397,284
                                                                                                                       ==========

IDENTIFIABLE LIABILITIES                                        52,702             --           576          3,163         56,441
                                                            ==========     ==========    ==========     ==========
UNALLOCATED LIABILITIES                                                                                                 1,338,689
                                                                                                                       ----------
                                                                                                                        1,395,130
                                                                                                                       ==========
</TABLE>

(*) In respect of assets under construction - See Note 9 A., above.


                                      F-62
<PAGE>
                                                                 Elscint Limited


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 20 - BUSINESS SEGMENTS (CONT'D)

B.    SECONDARY REPORTING

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                                            -----------------------
                                         2004         2003        2002
                                         ----         ----        ----
                                       REPORTED           ADJUSTED
                                       --------      -------------------
                                                NIS (THOUSANDS)
                                       ---------------------------------
<S>                                    <C>         <C>         <C>
REVENUES BY GEOGRAPHICAL MARKETS:
Western Europe                           203,615     181,668     170,326
Eastern and central Europe                25,908      19,250      34,725
Israel                                    55,263      20,106       1,509
Others                                     2,080       1,782       1,628
                                         -------     -------     -------
                                         286,866     222,806     208,188
                                         =======     =======     =======

PURCHASE COST OF SEGMENT FIXED AND
  INTANGIBLE ASSETS:

Western Europe                           154,185     159,784      40,668
Eastern and central Europe                17,459      16,141      10,397
Israel                                    24,842     214,559     123,271
Others                                        --           6          49
                                         -------     -------     -------
                                         196,486     390,490     174,385
                                         =======     =======     =======
</TABLE>

<TABLE>
<CAPTION>
                                     DECEMBER 31,
                                     ------------
                                 2004           2003
                               REPORTED       ADJUSTED
                               --------       --------
                                    NIS (THOUSANDS)
                               -----------------------
<S>                            <C>           <C>
SEGMENT ASSETS:
Western Europe                 1,338,694     1,140,612
Eastern and central Europe       308,761       264,396
Israel                           634,417       665,248
Others                             5,301         5,063
                               ---------     ---------
                               2,287,173     2,075,319
                               =========     =========
</TABLE>

NOTE 21 - DISCONTINUING OPERATION

A.    On December 31, 2002 the Company sold to a third party (the "Purchaser")
      (on the basis of an agreement signed on November 13, 2002) all the
      manufacturing, assembling, engineering and integrating of assemblies and
      sub assemblies (mainly for medical imaging equipment) which were preformed
      through its Ma'alot facility in northern Israel ("the Plant"). The Company
      sold to the Purchaser the Plant's assets as defined in the agreement. In
      addition, the Purchaser assumed certain liabilities in respect of the
      Plant save for those relating to claims pertaining to events or
      circumstances which occurred or arose prior to consummation, as defined in
      the agreement. The consideration was determined based on the net book
      value of the transferred assets as recorded in the Plant's financial
      statements as of December 31, 2002 with an addition of a fixed amount in
      respect of the goodwill. As to indemnity granted to Purchaser by the
      Company - See Note 16C. (3), above.

      Upon consummation, of the transaction, the Company's activity in the
      medical imaging area, in general and in the assemblies and sub-assemblies
      segment, in particular, has effectively ceased. Assets and liabilities,
      which relate to the discontinuing operation, were included in the balance
      sheet under separate categories - "assets/liabilities relating to
      discontinuing operation". The transactions and cash flows relating to the
      aforesaid operation were included in the statements of operations and cash
      flows under a separate category - "income from discontinuing operation"
      and - "cash flows related to discontinuing operation", respectively.


                                      F-63
<PAGE>
                                                                 Elscint Limited


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 21 - DISCONTINUING OPERATION DISCLOSURE (CONT'D)

A.    (CONT'D)

      Balances included in the statement of operations and/or dispositions in
      balance sheet items through the reported years, reflect primarily
      settlements or resolution of disputes and/or lawsuits and/or certain
      claims relating to the medical imaging businesses as well as to the
      assemblies and sub-assemblies business.

B.    FOLLOWING IS THE BREAKDOWN OF ASSETS, LIABILITIES, INCOME AND EXPENSES
      RELATING TO DISCONTINUING OPERATION:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,    DECEMBER 31,
                                                              2004            2003
                                                              ----            ----
                                                            REPORTED        ADJUSTED
                                                            --------        --------
                                                                  NIS (THOUSANDS)
                                                            -------------------------
<S>                                                        <C>             <C>
CURRENT ASSETS - Other accounts receivable                      2,577           3,026
LONG-TERM RECEIVABLES AND INVESTMENTS                          12,123          13,202
                                                               ------          ------
                                                               14,700          16,228
                                                               ======          ======

CURRENT LIABILITIES - Payble and other credit balance          71,410          82,166
LONG-TERM LIABILITIES                                              --              51
                                                               ------          ------
                                                               71,410          82,217
                                                               ======          ======
</TABLE>

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                                -----------------------
                                                             2004         2003         2002
                                                             ----         ----         ----
                                                           REPORTED           ADJUSTED
                                                           --------       -------------------
                                                                     NIS (THOUSANDS)
                                                           ----------------------------------
<S>                                                        <C>          <C>          <C>
Revenues                                                         --           --      422,056
Cost of revenus                                                  --           --      370,148
                                                             ------       ------       ------
                                                                 --           --       51,908
Selling and marketing expenses                                   --           --        1,075
General and administrative expenses                              --           --        8,580
                                                             ------       ------       ------
OPERATING PROFIT BEFORE FINANCE INCOME (EXPENSES), NET           --           --       42,253
Finance income (expenses), net                                2,512        6,463       (5,625)
Other income, net                                             8,555        6,509       15,206
                                                             ------       ------       ------
                                                             11,067       12,972       51,834
Gain on sale of activity                                         --           --       37,149
                                                             ------       ------       ------
NET PROFIT FROM DISCONTINUING OPERATION                      11,067       12,972       88,983
                                                             ======       ======       ======
</TABLE>

NOTE 22 - FINANCIAL INSTRUMENTS

A.    SWAP TRANSACTIONS

      (i)   SHH has entered into a Swap transaction with a foreign bank (which
            granted SHH a variable-interest bearing loan), with respect to the
            interest rate on the loan principal, namely the determination
            thereof at a fixed 5.8% interest rate through 2027. The Company's
            share in the principal amount of the loan and in the fair value of
            the transaction as of December 31, 2004, based on the market
            valuation of transactions similar thereto (considering all terms and
            conditions thereof), totals L 17.0 million and L 0.2 million,
            respectively.

      (ii)  Two companies within the B.H. Group have entered into a Swap
            transaction with a foreign financial institution (which granted
            thereto a variable-interest bearing loan), with respect to the
            interest rate on the loan principal, namely the determination
            thereof at a fixed 5.1% interest rate through 2009. The Company's
            share in the principal amount of the loan and in the fair value of
            the transaction as of December 31, 2004, based on the market
            valuation of transactions similar thereto (considering all terms and
            conditions thereof), totals E 36.0 million and E 0.6 million,
            respectively.


                                      F-64
<PAGE>
                                                                 Elscint Limited


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 22 - FINANCIAL INSTRUMENTS  (CONT'D)

B.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      The Company's financial instruments include monetary assets (cash and cash
      equivalents, short and long-term deposits, trade accounts receivables,
      marketable securities as well as other receivables and current assets) and
      monetary liabilities (short-term borrowings, long-term liabilities, trade
      accounts payables as well as payables and other current liabilities). Due
      to the nature of the financial instruments included in working capital,
      their fair values approximate those presented in the balance sheet.

      The fair value of long-term accounts receivable, deposits and long-term
      liabilities is ordinarily based on the present value of future receipts
      and disbursements, discounted by the interest rate applicable to the
      Company's lending or borrowing activities under similar terms as of the
      balance sheet date, and it is not less than as presented in the financial
      statements.

      As for the presentation of long-term balances not under market conditions
      - See Note 2 J., above.

      Derivative financial instruments having an active market were valued based
      on market value.

C.    CONCENTRATION OF CREDIT RISKS

      Cash and deposits in Israel and abroad are deposited in banks.

      Investments in marketable securities - as for the composition of
      short-term and long-term investments - see Notes 4 and 8, above.

      Investments in marketable securities, are exposed to market-price
      fluctuation. The capital markets are subject to changes deriving from
      events, of which are not controlled by the Group companies. Such changes
      may have an impact on the value of these investments upon realization.

      Due to their nature, the Group companies are not materially exposed to
      credit risks stemming from dependence on a given customer. The Group
      companies examine on an ongoing basis the volume of the credit extended to
      their customers and, accordingly, record a provision for doubtful accounts
      based on those factors affecting credit risks of certain customers in
      their opinion.

      Long term receivable - See Note 7A., above.

D.    INTEREST RATE RISKS - See Notes 3, 4, 7, 11 and 13 above.




                                      F-65